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Wine, Olive Oil, and Cheese? Mamma Mia!

We look to finish the week flat as a confluence of news and data pushed and pulled at investors all week long.  From a Brexit deal to earnings announcements, and a military misstep in Syria to economic data both good and bad, it has been a head-spinning kind of week. Fortunately, the good and bad cancelled each other out leaving investors to wonder what next week holds.

Let’s start with the good news. Earnings announcements were upbeat for the most part. Most companies reporting this week either met or beat analysts’ expectations. More importantly, we didn’t hear any doom and gloom guidance for the quarter ahead. Perhaps expectations and estimates are exactly where they need to be. That’s not to say that CEO’s are undertaking any big new ideas or capital-intensive projects given the current environment. It’s just to say that there were no surprises, and at the end of the day, that’s all we can ask for.

As for the not so good news, the economic data was a mixed bag this week. Retail sales, housing starts, and industrial production all disappointed in September. October’s Philly Fed business outlook fell short of expectations as did the September leading indicators which unexpectedly fell. Next week we look to existing home sales, durable goods orders, and October manufacturing and services PMI. Hopefully the data next week will offset some of what we learned this week.

In other news, Brexit has been resolved… with one big catch. On Thursday, EC President Jean-Claude Juncker tweeted, “Where there is a will, there is a deal – we have one! It is a fair and balanced agreement for the EU and UK and it is a testament to our commitment to find solutions.” The catch? The deal needs to be voted on by parliament, which rests heavily on the DUP (Democratic Unionist Party) that has thus far resisted any notion it supports the Johnson deal. Tomorrow is the big day. Let’s hope this is put to bed once and for all.

One piece of news you may not have been aware of is that starting today, the United States has slapped tariffs on $7.5 billion worth of European goods. Aircraft produced in the European Union (namely Airbus) will be slapped with 10% tariffs. So what you say? You’re not planning on buying an Airbus A380 anytime soon. Well, how about wine, whisky, olive oil, and cheese? Those will all set you back 25% more in the not too distant future as this tariff trickles its way through the pipeline. Also, it is unclear when or if this issue will be resolved given the number of balls the current administration is juggling. To my knowledge there are no ongoing negotiations to resolve this issue.

Also, worth mentioning, remember how I said last week that negative interest rates were hitting retail customers in Germany? Well, this week we learned that negative rates are being levied in Switzerland too. Credit Suisse will begin charging large depositors -0.75% on cash balances above 2M Swiss francs and business will be charged -0.85% on deposits above 10M francs. For now, it looks like these banks are targeting large depositors. I’d venture a guess it’s only a matter of time before those limits are lowered.

And one last thing before letting you go. Investors and analysts continue to look to the Fed to lower interest rates. The general consensus is that we should see another rate cut at the end of this month. In fact, the polls indicate a 91% probability of this happening. I mention this because this week we heard from several Board of Governors and many appear to be waffling in their zeal to lower rates further. Minutes from the last meeting indicate a schism among those board members who want to lower rates further and those who want to take a wait-and-see approach. Given the speeches this week, we may be in for a surprise at the October 30th meeting.

I don’t have a story this week to share so instead I’ll leave you with a few bits of trivia. The number of publicly traded companies in the United States peaked at more than 8,000 in 1996 but has fallen to approximately 4,400 today. The bond market has had just three down years in the last forty years. And lastly, more corporate bonds were issued globally ($434 billion) in September 2019 than in any month in history. Now you know.

Bruce J. Mason, MBA