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Q3 Earnings Season Starts Amid A Sell-Off In China


Though today is a bank holiday in the U.S. — in most places still celebrating Christopher Columbus’ “discovery of America,” whereas some states have switched the focus to celebrate Native Americans on this day — domestic stock markets will remain open today. No major economic data is scheduled for release today, which is just as well following Friday’s monthly non-farm payroll report showing a healthy 3-month moving average in jobs gains and an Unemployment Rate down to an almost absurd 3.7%.

So why are market futures down following this report, and why do they remain suppressed ahead of today’s open? Because as bond values, especially on the 10-year, continue to climb into the low 3%s, market participants are lamenting the long-term era of “cheap money,” which we look to be exiting for the foreseeable future. That said, bond trading is closed in the U.S. today due to the holiday.

Overnight, we also saw a big sell-off in China’s Shanghai market, which tumbled 3.7% Monday. While it’s quite tempting to look at this as evidence that the U.S. trade war with China is causing ruptures within their stock market, the truth may be more closely aligned with the fact that Chinese markets had been closed last week for a national holiday, and dumped on Monday in reaction to the sell-off in U.S. indexes last week.

All futures are down this morning — from market indexes to international currencies to all major commodities save Natural Gas, which is up slightly. Aside from — or perhaps because of — a closed bond market today, we expect trading volume to be light compared to normal, especially considering Q3 earnings season turns up the heat late this week with new reports from JPMorgan JPM, Citigroup C and Wells Fargo WFC.

Speaking of the big banks, considering we exist today in a wholly atypical bull-market — which looks toward its tenth birthday while at the same time re-catching fire as corporate tax cuts and growing consumer confidence — the Finance industry has been underperforming of late. Perhaps this might be rectified with higher interest rates and climbing t-bill values over time? Perhaps the banks will outperform expectations in the quarter just exited? We get to find out starting Friday morning.

For more on this subject, don’t miss Zacks Director of Research Sheraz Mian’s Earnings Preview report released on Friday: What Is Keeping Bank Stocks Down?

Otherwise, although explanations for a pullback in Chinese markets are immediate and plentiful, they are still worth keeping an eye on this week. After all, with foreign investors removing billions of yuan from the major indexes just today, it would follow that investors may be turning away from a bull-market strategy in the world’s second-largest economy. We shall see if this is a matter of simple correction or the sign of something more damaging looming in the Chinese economy.

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