European and U.S. corporate earnings are clearly in a down trend.
When companies like Google, IBM, GE, DuPont, 3M, Intel, Amazon, and Apple — especially Apple — all miss or give uninspiring fourth quarter guidance, even the most optimistic have to admit that things aren't going well.
But despite the fact that earnings season has been challenging, investors should keep looking forward as the U.S. economy has been showing signs of improvement.
The first read of third quarter GDP came in better than expected, the U.S. housing market continues to recover, and the FOMC reassured everyone that its commitment to quantitative easing and ultra low interest rates remains intact.
Also last week, Mark Carney made a rare misstep when he confused the markets about the Bank of Canada's intentions on interest rates.
A series of seesawing statements from the Bank of Canada and Carney sent bond and currency markets gyrating and left analysts scratching their heads as they pored over the statements.
By the end of the week, the benchmark interest rate remained unchanged at 1%, but the Canadian dollar posted its third weekly decline on global growth concerns. The loonie closed the week essentially at par with the U.S. dollar.
In Europe, Spanish unemployment climbed to a fresh record in the third quarter as a deepening recession left one in four workers jobless, adding pressure on Prime Minister Rajoy to seek a second European bailout. Spanish 10-year bonds had their worst week since August on the news. Given five quarters of economic contraction and rising yields, it does not seem Rajoy can resist asking for bailout on the troika's terms for much longer.
In commodities, oil and natural gas were headed for weekly losses on concerns that economic growth won't be strong enough to boost demand to alleviate an increasing inventory glut. Gold traders are the most bullish in three weeks in anticipation of additional central bank stimulus.
The Bank of Japan holds a policy meeting this week with speculation it may raise its QE program by ¥10 trillion ($U.S. 125 billion).
Also this week, the focus will shift to Canadian corporate results. Several large mining, energy and industrial companies report their results and we will see if they can match the solid results last week from Rogers Communications, Teck Resources, and CP Rail.
With gold bullion posting its best quarter in four years and with oil and natural gas up 9% and 18%, respectively, commodities related revenues should be strong. But what will be the impact of cost inflation and what type of Q4 guidance will they offer?
The economic focus will likely be on U.S. nonfarm payrolls and ISM data, Eurozone and China PMI data. We will also get Japan IP data and Spain 3Q GDP data.
This will be the last employment report before the Presidential election. Employment growth is likely to remain lackluster in October. Consensus call is for 120,000 new jobs in the month.
The soft patch in manufacturing continues unabated as last week's durable goods report showed a non-trivial drying up of the order pipeline. This tends to have negative ramifications for production and employment. Coupled with disappointing corporate revenue growth and you have a recipe for an even softer job growth in the near term.
In Canada, look for employment to rise by only about 10,000 for October. Canada's unemployment rate should stay at 7.4%.
With American GDP reporting ahead of expectations last week, Canada's August GDP results (due on Wednesday) should also impress.
A continuation of production setbacks in the mining sector through September may pose some downside risks to growth in Q3, although even flat growth in September following a 0.2% boost in August would still leave us with Q3 growth well above the BoC's 1% projection.