The markets are likely to be in a wait-and-see mode over the next few weeks, neither moving up or down decisively. Besides the outcomes of the impeachment inquiry and US/China negotiations, they will be waiting for evidence that US and global economic growth are speeding up. Although last week's US economic data were soft, they did not derail expectations of a speedup in growth following a US/China trade agreement. These expectations should continue to support the stock market rally. Meanwhile, Treasury yields no longer look excessively high after the intermediate-/long-end shed about 10 BPs last week.
Treasury yields may very well stay near these lower levels for awhile. Some considerations suggest the recent weakness is over, but early evidence does not suggest a sharp recovery. Manufacturing Output should rebound in November now that the GM strike is over. Moreover, retail sales could speed up in the holiday season, after a pullback in spending by the strikers and other strike-impacted workers may have weighed down sales in October. But, the Claims data so far do not point to a sharp acceleration in growth (see below). So, the Atlanta Fed model's estimate of Q419 Real GDP is likely to move up in coming weeks, after it was lowered to a meager 0.3% from 1.0% as a result of last week's data. But, it may not get to 2.0% soon.
This week's US economic calendar is light, with perhaps the most important being the Claims data and Markit PMIs on Thursday and Friday, respectively. Last week's Claims release did not support expectations of a speedup in growth. Initial Claims jumped 10k w/w to 225k, their highest level since June. While Continuing Claims fell, they remained in the upper end of the range seen since last April. Consensus looks for Initial to reverse the jump but for Continuing to stay high in this week's report.
Consensus looks for the Markit Flash Mfg PMI to edge up to 51.5 from 51.3 for the Services PMI to rise to 51.2 from 50.6. Both estimates keep the PMIs at relatively soft levels. But, this would be the 2nd m/m increase in a row for the Mfg PMI. It has led the Mfg ISM this year, so another increase would bode well for the Mfg ISM.
The Markit Flash PMIs for European Mfg, due Friday, may be the most important of the week's releases. The Euro Area and German Mfg PMIs have been particularly weak, so even a 1-2 point increase would keep them at a soft level. But, it would be an encouraging sign that global growth is about to pick up. Note that PMIs measure the number of companies seeing better or worse variables such as production, orders, and employment. So, the PMI would increase if more companies see improvement even if the extent of improvement is slight.
A Bi-Partisan Way Out of the Impeachment Inquiry
A conceivable way-out of this partisan-skewed Inquiry is for the House Intelligence Committee to recommend a reprimand, or censure, of President Trump rather than impeachment. Many Republicans have expressed disapproval of Trump's attempt to get the Ukrainians to investigate Biden and his son. So, they may go along with a Congressional reprimand. Although this would fall short of impeachment, Democrats might go along since the result would be bi-partisan. It would probably have minimal impact on the Presidential election next year, since Trump's many inappropriate actions are pretty much acknowledged by both sides. From a market perspective, it would be a positive for stocks.
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