10/13 Weeks Issue Check: US-China Conflict, Powell Says, Earnings Season

Attention is drawn to issues related to the U.S.-China trade dispute, which was one of the main causes of the U.S. stock market’s decline on Friday. At the time, U.S. President Trump strongly condemned China’s plan to impose export controls on rare earths and related production factors on countries around the world as “very hostile.” On top of that, after the market closes on Friday, he informed China that he will implement large-scale export controls on virtually all products starting from November 1. In addition, he announced that he plans to impose additional 100% tariffs on Chinese products and implement export controls on all important software. In addition, he mentioned that although he is participating in APEC, it is uncertain whether he will hold a meeting with President Xi Jinping, and that it was because of the APEC meeting that he set November 1 as the date. In addition, he claimed that the U.S. also has several means to respond, including aircraft parts. That is why, in line with Trump’s actions and remarks during the weekend and early weeks, it is inevitable to increase the volatility of the index’s rise/fall

Also on Friday, the issue of laying off federal officials, which was one of the factors that led to further declines in the U.S. stock market. At the time, the White House budget officer noted that the government employee dismissal measures had begun. In response, President Trump announced that many federal officials would be fired, especially many of them Democratic-leaning people. He announced the order of dismissal, saying that it is natural for the Democratic camp to be affected first because the move is the result of problems caused by the Democratic Party. The direct dismissal of federal officials is expected to further expand employment in the future, with ADP private employment recording negative growth recently and employment in the Bureau of Labor Statistics falling below 30,000. In particular, the number of long-term unemployed people over 27 weeks recorded 1.93 million in August, which is faster than during the past economic downturn, causing economic instability.

In the meantime, Fed Chairman Powell (14th) is preparing a speech on economic outlook and monetary policy at the NABE, and Fed Director Waller (15th) is also preparing a speech on economic outlook. Also, Steve Miran, director of the Fed, is expected to talk about economic outlook and monetary policy as he will speak at many places, including Nomura Research Forum. In addition, the results of the Beige Book on the 15th (Wednesday) are also noted. Recently, there have been reports in the media that complex discussions are underway at the FOMC on October 29. In fact, in the FOMC dot plot in September, nine people had either the first or interest rate freeze at two meetings, nine people had the second interest rate cut (50bp), and Miran insisted on a significant cut. Nevertheless, CME FedWatch shows that the probability of a rate cut in October is 97.8%. In particular, the data to be referenced for the shutdown is that the consumer price index and Powell’s remarks on the 17th will have a significant impact on the market.

Meanwhile, the results are also noteworthy because the third quarter earnings season will begin in earnest starting with U.S. financial stocks on the 14th (Tuesday). According to market research firm FactSet, the third quarter of the S&P 500 is expected to have increased 8.0% year-on-year. Many of the companies that have announced their earnings so far have exceeded their expectations and claim that the final growth rate is likely to rise to more than 13% based on the fact that their actual earnings have exceeded their forecasts in 37 of the past 40 quarters. In the meantime, the financial sector, which will be announced, is expected to show the fourth-highest growth rate among all sectors, especially the capital market and the insurance sector. Considering this, the market expects that the financial sector’s performance, which starts on the 14th, will be good

Of course, the 12-month Fwd PER of the S&P 500 is 22.8 times, exceeding both the 5-year (19.9 times) and the 10-year average (18.6 times), so it is a burden to be in the area of high valuation. In particular, the fact that it was an average of 16 times on a pre-pandemic basis can be said to have been overvalued due to liquidity. The market is expecting an earnings surprise to continue, which will eventually ease the valuation burden. Nevertheless, as the gap between profit growth and valuation is growing, it is natural that the results of the earnings report will exceed expectations, and the index will continue to rise only when it leads to excess growth. In addition, it should be noted how comments related to corporate performance, such as tariffs, employment, and high prices, develop

*Issues to Watch by Day of the week

Monday (13th): U.S.-China conflict, China import and export statistics
Tuesday (14th): Powell’s Economic Outlook, Earnings Season Start
Wednesday (15th): ASML Earnings, Waller Says AI Industry
Thursday (16th): Waller Director’s Economic Outlook Announces TSMC Earnings
Friday (17th): U.S. Consumer Price Index, U.S. Options Expiration Date

*a weekly schedule
October 13 (Monday)
China: Export-Import Statistics
US: Employment Trend Index
Report: OPEC Crude Oil Market Report
Meeting: IMF, WB Annual Meeting
Closed: Canada, Japan, U.S. Bond Markets
Loaded Earnings: Fastener

10/14 (Tue)
China: Vehicle Sales in September
Germany: ZEW Economic Expectations Index, Consumer Price Index
US: NFIB Small Business Optimism Index
Report: IEA Crude Oil Market Report
Remarks: Fed Chairman Powell (Economic Outlook and Monetary Policy at the American Society of Economic Management), Vice Chairman Bowman and Waller (Annual Meeting of the Institute of International Finance), Governor Collins, BoE Governor Bailey
South Korean firms: Samsung Electronics provisional earnings
Preloaded Earnings: JPMorgan (JPM), Wells Fargo (WFC), Goldman Sachs (GS), Citigroup (C), BlackRock (BLK), J&J (JNJ)

10/15 (Wednesday)
China: Consumer Price Index, Producer Price Index
India: Export-Import Statistics
Eurozone: Industrial Production
US: New York State Manufacturing Index
Report: Beige Book
Remarks: Steve Miran (CNBC Forum, Nomura Research Forum), Waller (AI)
LOADING PERFORMANCE: ASML (ASML), BOA (BAC), Morgan Stanley (MS), Abbott (ABT)
Janghu Earnings: United Airlines (UAL)

10/16 (Thursday)
Eurozone: Export-Import Trends
US: Philadelphia Fed Index, Producer Price Index (delayed), Retail Sales (delayed)
Remarks: Waller Directors (Economic Outlook), Michael Barr (Stablecoin), Steve Miran (International Financial Research Institute Annual General Meeting), Bowman