Today’s Big Picture

Equities in Asia started the week off mostly higher, led by the 2.2% and 2.6% moves higher in Hong Kong’s Hang Seng and China’s Shanghai Composite, respectively. By mid-day trading, European equities were mostly higher as well, and U.S. futures point to a flat market at the open. The U.S. bond market is closed today.

There are four main drivers of equities this week:

  • First is the ongoing fiscal stimulus talks in the U.S., which in our view, look increasingly less likely to result in a deal before the 2020 U.S. presidential election on November 3.
  • The second will be the onslaught of corporate earnings reports this week, particularly for financial firms and large banks. Comments surrounding loan growth, consumer borrowing levels, and the like will be a keen focus as investors revisit growth prospects for the second half of 2020 and consumer spending prospects ahead of the year-end holiday shopping season.
  • The third will be Apple’s (AAPL) “Hi, Speed” event slated for tomorrow, October 13, at which it is widely expected to unveil the 5G iPhone.
  • The fourth is Amazon’s (AMZN) 2020 Prime Day event, which was postponed from its usual time thanks to the pandemic.

As for earnings, Data from FactSet sees the S&P 500 constituents delivering EPS of $33.30 for the September quarter, up dramatically from $28.22 in the June quarter but down considerably from the $42.21 earnings in the September 2019 quarter. With the coronavirus resurgence, we suspect investors will be closely scrutinizing and parsing management comments to determine if the rebound in corporate earnings for the December quarter will materialize as expected. That answer will help shape the next move in equities.

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According to a study published last Friday of 1,062 patients in the New England Journal of Medicine,

Today’s Big Picture

Equities in Asia finished mostly higher today, capping off a positive week in full. Japan’s Nikkei traded off modestly today as did Hong Kong’s Hang Seng while China’s Shanghai Composite climbed 1.7% after reopening following the conclusion of the Golden Week holiday. Data from China’s Ministry of Culture and Tourism showed 637 million trips in China over the eight-day holiday, which generated revenue of $69.5 billion – now to wait and see what if any fall out there is on the COVID-19 front. 

By mid-day trading, European equities were mostly higher and U.S. futures point to a continuation of the week’s move higher for all of the U.S. equity indices. Spurring them on this morning is the continuation of what we can only call fiscal stimulus headline roulette as President Trump says he wants a “big deal” before the election that includes more comprehensive relief. With 24 days until the 2020 presidential election, barring a quick compromise between the two sides, the probability of a fiscal stimulus deal before the election looks increasingly less likely as each day ticks by. Weekend news-watching will be a must as any developments good or bad will set the tone for how global equity markets start next week.

Because a global pandemic, record-destroying fires in the west, and a few hurricanes already under the south’s belt this year just aren’t nearly enough for the joy that is 2020, Hurricane Delta has strengthened to a Category 3 as it churns toward storm-weary Louisiana. It is expected to make landfall as Category 2 or 3 late Friday, battering some of the same areas ravaged by Hurricane Laura.

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International Economy

August Household Spending in Japan fell 6.9% YoY, matching expectations for the month and compared to the 7.6% drop in July. On

Today’s Big Picture

All eyes are on the White House to discern if a stimulus package is possible before the November election. If it doesn’t happen before then, it is highly unlikely that one would be passed prior to the arrival of the newly elected on Capitol Hill in early 2021, which would mean the economy is on its own for the next six months or so. Raising the stakes and adding to renewed concerns over the speed of the economy is the continued resurgence in the coronavirus, which has prompted New York Governor Andrew Cuomo to confirm that non-essential business will close certain hot spot zones of New York City.

The major equity indices in Asia recovered from their earlier losses to close mostly in the green today following late-night tweets from Trump that seemed to reverse course from his declaration yesterday that negotiations for a stimulus bill would be on hold until after the election. Hong Kong’s Hang Seng rose 1.1%, Australia’s ASX 200 rose 1.3%, South Korea’s Kospi closed up 0.9%, while Japan’s Nikkei was mostly unchanged.

By midday trading, the main European equity indices were all in the red, albeit only slightly, while U.S. futures point to positive moves at the open after yesterday’s slide.

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International Economy

The Australian Industry Group Australian Performance of Services Index fell to 36.2 in September from 43.5 in the previous month, the tenth consecutive contraction in the services sector that was at a faster pace than in July as renewed coronavirus-induced restrictions weighed heavily on business activity.

Japan’s economy continues to show signs of improvement. The nation’s Coincident Index (preliminary) rose slightly to 79.4 from 78.4 in July. This was the highest reading since March for the index that consists of a range of data including factory

Today’s Big Picture

All eyes will be on tonight’s presidential debate as investors prepare themselves for what is likely to be a feisty exchange. Equities closed mixed in Asia with Hong Kong’s Hang Seng falling 0.9% while China’s Shanghai Composite gained 0.2% and its Shenzhen Component rose 1.1%. South Korea’s Kospi also gained on the day, closing up 0.9%, Japan’s Nikkei squeezed out a slight gain of 0.1%, but Australia’s S&P/ASX 200 closed flat.

By midday trading the majority of the European indices were in the red for the day and U.S. equity futures point to little change at the open from yesterday’s close.

Much like yesterday, there are few corporate earnings reports while the U.S.-facing economic data today will have little influence on GDP expectations for the soon-to-be-over September quarter. Hopes for some forward progress on a fiscal stimulus deal appear to be once again dashed as Treasury Secretary Steven Mnuchin and Senate Republicans said the proposed $2.2 trillion stimulus bill announced by House Democrats yesterday is too much to spend. 

We suspect this will add to the barbs to be had at tonight’s first 2020 presidential debate, the outcome of which is likely to influence expectations for both the coming election and post-election policies. Get your popcorn and beverage of choice ready – plenty of fireworks are all but guaranteed. We here at Tematica are partial to Aviation Gin HomeschoolingEdition. Ah 2020, the gift that keeps on giving.

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International Economy

South Korea’s recovery is slowing. Industrial Production fell -0.7% MoM in August after a 1.9% gain in July to sit 3.0% below where it was a year prior versus expectations for a decline to just -2.8% YoY. Manufacturing production is down 3.1% YoY and Construction Output is down 9.4% YoY. Retail sales rose 3.0% MoM

Multifamily market signals, survey shows improvement in small biz gloom, Colony Capital bails out on hotels, how to handle pesky tenants, and the return of the cubicle.

In Today’s News

Berkadia: 3 Numbers Signal the Future of Multifamily Real Estate

This blog post by the Berkshire Hathaway (NYSE: BRK-B) brokerage and services outfit says to watch multifamily sales volume, rent payments made, and consumer confidence scores. They paint a somewhat promising picture.

Why it matters: The Berkadia research shows that multifamily deals comprised the largest share (40%) of CRE deals in August, reflecting that segment’s resilience, and that while investment sales activity has declined during the pandemic, “there is little data to support the narrative that we will see a trend of investors fleeing primary and coastal markets.”

Small Firms Now Somewhat Less Apocalyptic About the Pandemic

Sixty percent of business owners said they will be able to remain open for more than half a year, up from April’s figure, a new survey shows.

Why it matters: Losing 40% of your tenants doesn’t sound very good, but it’s better than the 54% who said they couldn’t make it six months when the same survey was done in April. CRE landlords will take what they can get at this point.

Colony Capital Sells $2.8 Billion Hotel Portfolio for $67 Million

The sale of 197 properties gets the real estate investment trust (REIT) some cash but a lot more debt relief. Highgate Holdings will assume $2.7 billion of debt in its purchase from Colony Capital (NYSE: CLNY).

Why it matters: Colony apparently now will focus on data centers and digital infrastructure, according to this Bisnow report. That’s another reason to update yourself on a REIT that’s holding and planning when you’re considering a buy. They can change a lot and often.