This Week's Key Developments

Besides important corporate earnings announcements, this week contains 3 main macro-economic items: /1/ the October 29-30 FOMC Meeting, /2/ Q319 Real GDP release, and /3/ the October Employment Report.  All three should have at most transitory effects on the stock market.

Optimism on the US/China trade negotiations should override the significance of these items and continue to support the market leading up to a possible signing of an agreement at the Asia-Pacific Economic Cooperation meetings on Nov. 16 and 17.  The market will likely react positively to a "phase 1" agreement even if it does not contain much concession on the part of the Chinese.  All that is needed may be a sense that the worst result, a total breakdown between the two countries, has been averted.  After this sense is fully built into the market, the focus will likely shift to the outcome of the House Impeachment Inquiry.  This could weigh on the stock market until there is clarity over the final resolution -- which could be positive or negative (see my prior blog).

FOMC Meeting'
Some market economists, like those at Goldman Sachs, expect the same result as I had outlined in last week's blog.  The Fed will likely cut by 25 BPs, but suggest it will be the last for awhile.  GS economists believe the Statement will drop the phrase "will act as appropriate to sustain the expansion."  While this expectation is a long shot -- since it is difficult to see the cost to the Fed of keeping the phrase and, in fact, it is highly appropriate -- its elimination would likely elicit a negative knee-jerk negative reaction by the stock market.  Such reaction could reverse if Powell emphasizes that its removal represents the Fed's more optimistic outlook as "downside risks" seem to be ending.

But, if the Fed drops the phrase and appears desirous of keeping policy steady for the near future, the burden of reacting to the ups and downs of the economic outlook will fall increasingly on the medium- to longer-end of the Treasury yield curve.  Longer-term yields will react more to the strength or weakness of upcoming US economic data.  

Q319 Real GDP
Both consensus and the Atlanta Fed model have essentially the same forecast for Q319 Real GDP -- 1.7% consensus and 1.8% Atlanta Fed.  This growth rate is in line with the Fed's 1.8-2.0% estimate of the longer-run trend growth rate.  The Unemployment Rate supports this forecast --  the Rate was 3.63% in both Q219 and Q319, suggesting GDP growth was near trend in Q319.  Of course, if the Fed's view of longer-trend trend is too low, as is quite possible, then there is upside risk to the 1.7-1.8% Q319 forecast.  Moreover, with the Rate falling to 3.5% in September, it raises the possibility that economic growth picked up above the longer-run trend as Q3 ended. 

October Employment Report and Mfg ISM
This Report could be difficult to demonstrate that economic growth has sped up, as it will be impacted by the GM strike.  The strike will subtract 46k workers directly from Nonfarm Payrolls.  Workers laid off in supplier industries as a result of the strike will subtract, as well, but the number will not be readily identifiable.   These spillover layoffs could add to the Unemployment Rate, as well.  The Nonfarm Workweek could be held down, too.  And, the absence of the relatively high-paid strikers could push down Average Hourly Earnings.  This would be on top of calendar considerations, which argue for a low 0.1% m/m print for October AHE.   The y/y would be 2.8-2.9%, versus 2,9% in September.

The October Mfg ISM also could be negatively impacted by the GM strike, although the survey is not generally dominated by the motor vehicle industry.  Consensus looks for an uptick to 48.8 from 47.8 in September.  The evidence is mixed.   The Markit Mfg PMI rose, but the Phil Fed Mfg Index fell.