US stocks continue to hang around record territory as earnings season heats up with almost one-fifth of the S&P 500 members set to report this week. So far, earnings season has been much better than most initially feared, as the banks painted a healthy picture of the US consumer. This week, we will see how consumer staples and discretionary companies soften their outlooks. Today, if we see strong outlooks from McDonald’s (NYSE:MCD), Procter & Gamble, Microsoft (NASDAQ:MSFT) and Caterpillar (NYSE:CAT), we could see stocks finally test record-high territory.
Canada
Canada’s Federal Elections saw Prime Minister Justin Trudeau win a second term. Trudeau’s Liberal Party failed to secure the 170 seats needed for a majority and will likely look to form a coalition with the NDP. The Canadian dollar, this year top performing G10 currency, saw little reaction following the election result and could see a resumption of gains against other currencies if both Canadian data continues to outperform their peers and if oil prices steady.
The election result along with Trudeau’s expected spending packages is likely to do any big favors for TSX futures and now the focus will now shift back to monetary policy and oil prices. Fiscal policy was going to get a boost from either the Conservatives or Liberals in the short-term. It is likely we will now see the Liberals deliver on spending promises, with the deficit rising to C$27 billion over the next year. Beyond 2020, Trudeau is now expected to run deficits in excess of C$20 billion every, while increasing the projected debt to well over C$30billion over that time.
The Bank of Canada is likely to remain on hold as the global risk environment has improved in recent weeks.
Brexit
Today, we will find out if PM Boris Johnson can deliver Brexit before the October 31st deadline. Today’s key vote will see if MPs agree on principle with Johnson’s Brexit deal. Expectations are in Johnson’s favor for Johnson to win the vote on the principles to his deal, but it is questionable if MPs will settle on his frantic timeline to get this done by end of month.
Trade
We could be in a sweet spot for constructive trade comments as China and US try to finalize details to the phase-1 trade deal. Yesterday, President Trump highlighted that talks are going well, complimenting other supportive comments from White Advisor Kudlow and Trade Representative Lighthizer. Next month’s Chile APEC summit is expected to confirm a major de-escalation in the US-China trade war that should also help deliver progress towards easing global growth concerns
Oil
Oil prices continue to reverberate as news flows lack meaningful updates on the trade war, which is responsible for over two-thirds of the recent decline. With geopolitical risk headlines being somewhat quiet and US stockpiles appearing poised for its sixth straight week of gains, oil prices have been stuck in the low $50s for all of October.
Gold
The longer gold remains below the $1,500 an ounce level, the more vulnerable it becomes to a retest and possible break of the summer lows. Gold has softened as risk appetite has dramatically improved on two huge tail risks, Brexit and the US-China trade war. No-deal Brexit risks have been greatly alleviated and it seems the worlds’ two largest economies are inching their way towards a deal.
If we see a major wave of bullion weakness following positive outcomes on both trade and Brexit, buyers should emerge around the $1,450 an ounce level. The prospects of global stimulus, central bank demand, and dollar diversification will likely see gold’s attractiveness return.