Global Equity Weekly

October 25, 2019 | 16:35

Electrified Earnings

Economist

Economist
Economics

Carl Campus joined BMO Economics in 2007 as a Research and Technical Assistant; he was later promoted to his cur... (Read more)

Carl Campus

Economist
Economics

Carl Campus joined BMO Economics in 2007 as a Research and Technical Assistant; he was later promoted to his cur... (Read more)

Equity markets moved broadly higher this week as investors grappled with a mix of corporate earnings and softer economic data before receiving a late-week push from reported progress on the U.S./China trade front. Of particular note, U.S. officials said “the two sides are close to finalizing some sections of the agreement”. Despite the relative ambiguity of “close” and “some sections”, the immediate market reaction was positive.

The S&P 500 rose 1.2% and flirted with an all-time high amid big jumps in energy and banking, while consumer discretionary and telecom underperformed. Earnings season remained on a positive track as Tesla results electrified investors with a return to profitability, though Amazon’s miss on Friday took a little shine off sentiment. Nevertheless, more than 78% of companies that have reported so far have beat analyst estimates—a share which is moderately higher than longer-term averages.

The TSX inched up 0.2%, notably experiencing little volatility in the wake of Monday’s Federal Election in which PM Trudeau’s Liberal Party secured a minority government. Of course, the lack of a big move isn’t all that surprising. As Douglas Porter and Robert Kavcic noted in our election coverage earlier this week, “Canada has a long history of dealing with minority governments” and “Typically, markets and the economy are driven by much bigger global forces than domestic political considerations.”

Table 1 - Market Performance

Source: BMO Economics, Bloomberg

With that in mind, monetary policy decisions from both the Federal Reserve and Bank of Canada are on deck next week (on the same day no less!). While the BoC is expected to maintain its status quo, the Fed is poised to cut for a third straight meeting, and this week’s economic data did little to change that.

U.S. housing market activity was soft in September, as existing home sales pulled back 2.2%, with weakness spread across all regions, while new home sales also edged lower. U.S. durable goods orders were also weak in September, as slumping aircraft demand and the GM strike (which began mid-month) weighed on the transportation sector.

In Canada, retail sales unexpectedly declined in August, though there were hints that discretionary spending wasn’t all that terrible. Notably, sales at electronics/appliance stores (+1.0% m/m) were the strongest since last November while sales at jewelry/luggage retailers jumped 4.3% (could it be those massive NBA Championship rings?). Meantime, given the recovery of Canada’s housing market in 2019, the BoC is in no rush to join the easing parade, for fear of reigniting unsustainable price growth and household debt. As it stands, the BoC is expected to remain on hold for the foreseeable future.