Prior week summary
The major U.S. equity indices moved modestly higher last week, flirting with all-time highs as third-quarter corporate earnings results and an agreement between the U.K. and E.U. on a Brexit deal boosted investor sentiment. With the October 31 deadline fast approaching, the U.K. and E.U. agreed on a withdrawal agreement on Thursday, setting the stage for a battle in Parliament. The U.K. Parliament rejected the proposed deal on Saturday, forcing Prime Minister Boris Johnson to ask the E.U. for a three-month extension of the October 31 deadline. The odds of a no-deal Brexit has seemingly increased after the vote as the U.K. will need the 27 E.U. member states to unanimously agree to extend the U.K.’s exit date. The possibility of Johnson’s deal garnering enough support gained new life over the weekend, however, as Keir Starmer, the shadow Brexit secretary, indicated the opposing Labour party will back an amendment to Johnson’s Brexit deal, calling for a second referendum. Prime Minister Johnson now plans to hold another meaningful vote as early as October 21 in an attempt to pass the deal he has structured with the E.U. prior to the deadline.
Third-quarter corporate earnings season kicked off last week as a number of companies in the S&P 500 released earnings results. While the results were mostly positive, the pickup in sentiment was largely soured by weak economic data domestically and abroad. In the U.S. retail sales fell far below analyst expectations declining 0.3% in September along with a 0.4% decline in industrial production and fewer housing starts than expected. The International Monetary Fund cut its estimate for global growth from 3.2% to 3.0%, the lowest level since the financial crisis, citing global trade headwinds and rising geopolitical tensions. The German government cut its forecast for 2020 GDP to 1.0%, down from a previous estimate of 1.5%. German Economy Minister Peter Altmaier suggested that while growth is weaker there is no cause for alarm saying, "Economic developments in Germany are currently divided. But even if the outlook is currently subdued, there is no threat of an economic crisis." Lastly, China posted its lowest GDP figure in nearly 30 years as the U.S./China trade war continues to take a toll on the world’s second-largest economy.
The look forward
Market participants will see a light week of economic data as new and existing home sales, durable goods orders, and a consumer confidence measure dot the economic calendar.
Market implied policy path (Overnight indexed swap rates)
Fixed income snapshot
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