Wednesday, markets were mainly in recovery mode and made up some ground after a selloff on Chinese economic weakness Tuesday. Strong earnings from International Business Machines (IBM) and Procter & Gamble (PG) propped markets up after downward revisions to global economic growth by the International Monetary Fund (IMF) earlier in the week. The market is also fighting less than stellar news on the trade front between the U.S. and China. And, growing tension on the U.S. government shutdown which appears to become more acrid by the day. The two parties are now arguing over when and where President Trump will deliver his state of the union address next week. From an economic data perspective, investors are getting fewer and fewer data points as more federal agencies stop releasing data due to worker absences.
Jobless claims, PMI composite flash data, and leading indicators will all be released Thursday morning. Jobs continue to be a bright spot in what has become a muddled economic picture, with continually weakening housing numbers, and data indicating manufacturing in the U.S. is slowing. With a lower than expected 213K last week, claims are expected to again remain below the 220.75K four week moving average. PMI flash data is expected to show a continuing sluggishness in manufacturing, with only a slight rise from December levels and still below numbers reported in November.
Thursday is a big day for earnings as Intel (INTC), Union Pacific (UNP), Bristol-Myers (BMY), Starbucks (SBUX), and American Airlines (AAL) all report. American Airlines has traded relatively flat after declining around 25% from highs set just before the selloff that began in October last year. Analysts will be looking at load count as well as the impact of oil prices. There will also likely be discussion of the impact of the government shutdown, and how that is impacting profitability. Starbucks is trading around 10% above highs set in the first half of 2018, and analysts are anticipating strength in North America to offset weakness in the Chinese market.
There is no slowdown in earnings headed into the weekend as AbbVie (ABB), Colgate-Palmolive (CP), Ericsson (ERIC), D.R. Horton (DHI), and Lear Corporation (LEA) all report Friday morning. Management for D.R. Horton will be under a microscope to give investors an expert opinion on if and when they see the housing market stabilizing, and perhaps turning up. Last quarter Colgate-Palmolive’s gross and operating margins both fell, and analysts are not expecting a turnaround this quarter. With the majority of its revenue generated internationally, the consumer goods company should serve as a canary in the coal mine, providing some indication as to whether the global economy is faltering as many believe.
The monthly Kansas City Fed Manufacturing Index is projected to decline yet again after a jaw-dropping 12 point fall last month. The index is expected to come in at 2, down only 1 point from last month’s final tally of 3. Leading economic indicators are also expected to decline for December at -0.1%. The stock market fall, combined with the aforementioned weakness in manufacturing, accounts for the December decline.
Friday we will likely not get the release of planned durable goods orders and new home sales due to the partial government shutdown. We will see data on the Baker-Hughes North American rig count to get an idea of how the rig count is trending with the continuing weakness in oil.