The announcement that the U.S. and Canada had reached a trade agreement sent the DJIA and S&P 500 higher Monday. The new United States-Mexico-Canada Agreement or USMCA must be approved by Congress before it goes into effect. The rally in U.S. markets appeared to be more of a relief rally that there is finally some certainty on trade in North America than a celebration of the deal. Traders hope the closing of this deal portends a shorter trade war with China, and perhaps an agreement with the EU. But while announcing the new USMCA in the Rose Garden, President Trump threw cold water on restarting U.S./China talks by saying it was “too early to talk” trade with China at this point. The President presumably wants to give the new tariffs a chance to have an impact before reopening negotiations.
Pepsico (PEP) reports earnings Tuesday. The beverage and snack company has been losing ground in North America, and covering with gains internationally for several quarters. The recent announcement that the company would be acquiring SodaStream (SODA) my staunch some of the erosion in North America, but short term the acquisition will likely add integration costs. Paychex (PAYX) also reports earnings Tuesday morning. After hitting lows in April, the payroll company has risen almost 30%, but earnings estimates have been falling the last few months. As with many of the financial stocks, the company may be feeling the effect of competition from upstart FinTechs more nimble than the $26 billion giant.
In economic news, Tuesday morning the Redbook retail numbers will be released along with motor vehicle sales. Following close on the heels of the trade deal, and with GM no longer providing numbers for the report, the auto numbers may need to come with a user guide this time around. Fed Chairman Powell will deliver a speech at 12pm on Tuesday, but it’s highly likely no new information will come out of the talk given the recency of the Fed announcement last week. Wednesday MBA mortgage applications, the ADP Employment Report, services PMI, and the ISM Non-Manufacturing Index will all be released. Consensus puts the employment number at 179,000 jobs created in September.
Supplementing the mortgage application numbers Wednesday morning will be earnings from Lennar (LEN). The home builder’s stock has plummeted this year. Investors are anxiously awaiting the company’s forecast and how rising interest rates will impact their business heading into 2019. An update on the merger progress with Calatlantic Homes will likely also be on tap. RPM International (RPM) has enjoyed a nice rally the second half of the year. The international sealant and coating company has been restructuring and cutting costs, which has pleased investors. To continue the move up, the company will need to paint a picture of growth in the year ahead, which may not be forthcoming on Wednesday.
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