The trade truce between the U.S. and China may not be much of a deal according to Chinese officials (who wanted further talks), but investors didn’t seem to mind (after rallying the previous week). The U.K. and the European Union reached a deal on Brexit, which still had to be approved by Parliament. In its World Economic Outlook, the IMF downgraded its outlook for global growth, noting that “trade growth has come to a near standstill.” China reported slower GDP growth.
The U.S. economic data were generally on the weak side of expectations. Retail sales fell unexpectedly in September, with core sales rising only slightly (a clear loss of momentum closing out the third quarter). Industrial production fell, reflecting the strike at General Motors (GM). Residential construction figures were mixed, but showed further improvement in single-family activity. The Index of Leading Economic Indicators fell 0.1% following a 0.2% decline in August (revised from 0.0%), consistent with a slower pace of growth in the near term and an increased chance of a recession in 2020.
Next week, the economic calendar thins out. Home sales figures are expected to have been mixed in September, but the near-term trends are higher. Aircraft orders are expected to have fallen, pushing the headline durable goods figure lower. There is also likely to be some effect from the GM strike. Ex-transportation, the trend in orders is expected to be weak, but not terrible (that is, not the kind of plunge that we would see during a recession). Earnings reports will remain an important driver of equities, while investors will look ahead to the following week, when we get the Fed policy decision, the first look at third quarter GDP, the October Employment Report, and the ISM manufacturing data.
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