Next week will be pivotal for markets with trade deadline, Powell, Trump-Kim and more

Stock Market

The coming week could be one of the most pivotal for the White House and the markets, depending on how President Donald Trump chooses to proceed with China trade tariffs and what is in a possible report from Special Counsel Robert Mueller on the president’s campaign.

Trade talks have been making apparent progress between U.S. and Chinese officials, and in a positive sign, sources say a possible meeting between Trump and Chinese President Xi Jinping is being discussed for late March. Strategists expect some eventual deal to be reached, but first and foremost, the March 1 deadline on new tariffs looms at the end of the week. For now it looks like the deadline could be extended.

Mueller is expected to provide a report to the Attorney General on what he found out about the Trump campaign and Russia in the next several days, according to a number of news reports. The Attorney General could then pass the report, or a summary of it, to Congress.

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The whole week ahead is packed with major events that could be market moving, including two days of economic testimony from Federal Reserve Chairman Jerome Powell. He appears before the Senate Banking Committee Tuesday, and then a House committee Wednesday for the semi-annual testimony.

Trump also heads to Vietnam to meet North Korean leader Kim Jong Un, and U.K. Prime Minister Theresa May faces another Brexit vote in parliament.

The markets are also closely watching U.S. economic data after a string of misses on manufacturing and consumer data rattled stocks in the past couple of weeks. The lack of government data during the 35-day government shutdown has made it more difficult than usual to get a handle on the economy, and some economists now see fourth quarter and first quarter growth running at just 2 percent or below. Fourth-quarter GDP, delayed because of the shutdown, is finally released on Thursday.

There are also still quite a few earnings releases expected, though the earnings season is winding down. Home Depot, Macy’s, Nordstrom’s and other retailers are among those reporting.

“To me, the biggest story next week for markets is China. Do they announce an agreement or do they at least extend the deadline? That’s the one that has the most immediate market impact. The markets are pricing in good news on China next week,” said Tom Block, Washington policy strategist at Fundstrat.

The Mueller report on the special counsel’s findings could be released to Congress next week, according to a number of news reports. Whether the Trump campaign was involved or not matters much less than whether the president himself was involved.

“This is of course great for American political drama but as for the $4.3 trillion foreign exchange market or what does this mean for the value of corporate America, it’s not a big deal unless there’s a smoking gun, and people think Trump is going to get impeached,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “Why this is important is it might paralyze other policy…The only way it is a really big factor is if it’s used as fodder to pursue further investigations that paralyze the administration like Watergate did.”

Chandler said while the events in the coming week could add to tension, they could all remain unresolved.

“We want some closure. Next week is not going to bring some closure. We’re going to get extensions,” said Chandler.

The uncertainty around China trade has been impacting the economic data, and business leaders have called on the White House to end the tariffs on China. The farm belt has been hurt as China retaliated against U.S. products.

Cowen analysts said the talks are nearing a “term sheet” between Chinese and U.S. trade negotiators. The memorandums are expected to touch on a half dozen key areas, including forced technology transfers and cyber theft; intellectual property rights; opening up of Chinese financial services to U.S. companies; currency; agriculture, and non-tariff barrriers to trade. Those barriers include industrial subsidies, licensing procedures and other regulations.

The talks are also expected to focus on a list of 10 goods and commodities that China will buy to help narrow the trade balance. That could include an additional $30 billion per year of U.S. farm products including soybeans, corn, and wheat, the Cowen analsyts said.

Block said the president understands the political impact of continuing tariffs or raising them to 25 percent on March 1, as he has threatened.

Trump recently has said the deadline could be extended. “The road to 270 electoral votes for Trump goes through the farm states of the Midwest. There’s no road map for Trump to get 270 electoral votes if he doesn’t carry all those Midwestern farm states,” he said. “China is very big for lots of reasons…Trump’s people have to figure out, at a minimum, how to extend the truce…The biggest threat to those states is continued trade war with China focused on agricultural products exported from the U.S.”

Besides China and trade and the Mueller report, President Trump plans to meet North Korean leader Kim Jong Un in Vietnam in the week ahead, and Trump has said it is not to be his last meeting with Kim. The U.S. and North Korea are expected to seek a common understanding of what is expected in denuclearization, and Trump is expected to push Kim Jong Un to give up his nuclear ambitions.

Block said it’s unclear what will come of those talks. “Trump overstates what he does, but the world is a little safer with us talking with North Korea rather than sabre rattling with North Korea. That seems to be Trump’s approach. Regardless of what his thought process is, the net result is better than not doing it,” said Block.

Investors are also looking to Europe where the U.K. Parliament votes on a no-deal Brexit, which critics say would disrupt trade and commerce .

Prime Minister Theresa May continues to push for Britain’s exit from the European Union March 29. On Wednesday, there will be a vote on an amendment that would give the House of Commons the power to block a no-exit deal if May has not secured the approval by the members of parliament for a revised Brexit deal by the middle of March.

“They’re trying to force [Prime Minister Theresa May] to give up the no deal exit. The EU is expecting a request for a 60-day extension,” said Chandler.

As for U.S. data, there is also personal income and spending on Friday and fourth quarter GDP Thursday. December’s disappointing durable goods data showed slower business spending, so analysts are watching closely to see whether there was any improvement in consumer spending.

“The U.S. growth slowdown is seen intensifying in the first quarter too. We forecast U.S. GDP growth at a modest 1.5% annual rate in Q1. Slowing global manufacturing activity, tighter financial conditions, sluggish business equipment spending, and lackluster federal government spending (due in part to the government shutdown in January) are all contributing to the weakest quarter for U.S. growth in two years,” wrote Scott Anderson, chief economist at Bank of the West.

Anderson said he expects fourth quarter growth at 2.2 percent. He also said if uncertainties in the U.S. around China trade talks and around the Brexit negotiations go away, there is a good chance U.S. economic growth will bounce back in the second quarter.

“I should note this is our base case forecast, as none of the parties involved in the negotiations want to see the worst case outcomes realized. If for some reason either of the negotiations go seriously off-track, however, the 2019 U.S. and global economic outlook will become considerably bleaker,” he wrote.

Monday

Earnings: Tenneco, Shake Shack, Potbelly, Range Resources, Terex, Allison Transmission, Tenet Healthcare, Mosaic, Etsy

10:00 a.m. Dallas Fed President Robert Kaplan and Vice Chair Richard Clarida, session with community

5:00 p.m. Dallas Fed’s Kaplan and Fed Vice Chair Clarida Q&A

Tuesday

Earnings: Home Depot, Eaton Vance, Discovery, Bank of Montreal, Mylan, Nabors Industries, Auto Zone, Weight Watchers, Planet Fitnexx, Axon, Macy’s, Sempra Energy, EOG Resources, Red Robin Gourmet Burgers, Planet Fitness, Whiting Petroleum, Cracker Barrel, JM Smucker

8:30 a.m. Philadelphia Fed non manufacturing

9:00 a.m. S&P Case Shiller home prices

9:30 a.m. FHFA home prices

10:00 a.m. New home sales

10:00 a.m. Consumer confidence 10:00 a.m.

Fed Chairman Jerome Powell testifies before Senate Committee

Wednesday

Earnings: TJX Cos, Lowe’s, Bayer, Chesapeake Energy, Wingstop, Cushman and Wakefield, Hostess Brands, Best Buy, Royal Ahold, Rowan Cos, Booking holdings, Apache, Campbell Soup, Royal Ahold, HP, L Brands, Petrobras. Square, Box,

10:00 a.m. Pending home sales

10:00 a.m. Fed Chairman Jerome Powell testifies before House committee


Thursday

Earnings: JC Penney, A-B InBev, Ambev, SeaWorld, Nielsen, NRG Energy, PG&E, Toronto-Dominion, Canadian Imperial Bank, AMC Networks, JD.com, Party City, Keurig Dr. Pepper, Gap, Nordstrom, Workday, VMWare, Pure Storage, Autodesk, Dell

8:30 a.m. Jobless claims

8:30 a.m. Q4 GDP 8:30 a.m. Advanced economic indicators

8:50 a.m. Atlanta Fed President Raphael Bostic

9:45 a.m. Chicago PMI

12:15 p.m. Philadelphia President Patrick Harker

1:00 p.m. Dallas Fed President Robert Kaplan

Friday

Earnings: Foot Locker, Tribune Media, WPP Group, Tribune Media

8:30 a.m. Personal income

8:30 a.m. Core PCE 10:00 a.m. ISM manufacturing

10:00 a.m. Consumer sentiment

10:00 a.m. Construction spending

1:15 p.m. Atlanta Fed’s Bostic

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