With 34% of the S&P 500 reporting earnings, so far profits aren't as bad as expected; risk of a no-deal Brexit recedes and positive signs from the U.S.-China Trade War.
3Q Earnings: Approximately 34% of the S&P 500 has reported earnings with revenues up 3.2% Y/Y and earnings roughly flat at -.1% Y/Y, according to Bloomberg. So far, the biggest positive earnings surprises have come from the Materials, Communication Services and Consumer Discretionary, while Energy has lagged. About 1/3 of the companies that report in the current season for the Stoxx 600 have announced results, with sales up 3.1% Y/Y and earnings down 5.5% Y/Y. So far, sales and earnings are in line with estimates.
Brexit: British MPs voted in favor of the Brexit deal in principle, but rejected a fast-track plan to rush the deal into law with a three-day timetable by 322-308. Prime Minister Boris Johnson announced a motion for a December 12 snap election will be put to a vote on Monday, which will require two-thirds of Parliament to approve for the poll to take place. If Johnson wins that vote, there is a chance the Brexit deal could be voted into law before Parliament is dissolved for the election on November 6. However, it is more likely that the EU extends the Brexit deadline to January 31 and the election then becomes a referendum on Johnson’s strategy.
U.S.-China Trade: China is starting to ramp up purchases and is expected to buy $20 billion of U.S. agricultural products in a year if it signs a partial trade deal with U.S. next month. This would put its U.S. imports of farm goods back to pre-trade war levels. China said it would consider boosting purchases in further rounds of talks and in a second year of a potential final deal when all existing tariffs are removed, purchases could rise to an annual figure of $40–$50 billion. The U.S. announced it would delay the tariff increase scheduled for October 15, which would increase the rate from 25% to 30% on about $250 billion of Chinese imports. Additional tariffs on Chinese products, slated to begin on December 15, haven’t been called off yet. In exchange, China would also agree to some measures on intellectual property and concessions in financial services and currency management.