Happy Sunday. Hope you're having a relaxing one. In today's newsletter: A preview of US bank earnings. Plus: What might happen with Brexit and Costco's obsession with $4.99 chickens.
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EARNINGS SEASON
US bank earnings are looking ... not great
The biggest American banks report earnings this week, and they will probably be hampered by weaker economic growth and lower interest rates. The Federal Reserve cut interest rates in July and again in September, making it more difficult eke out returns on loans.
The dour earnings expectations mark a change from the previous quarter, when big banks returned fat profits despite worries about an economic downturn in the United States.
Tuesday is the big day. Investors will hear from Citigroup, Goldman Sachs, JP Morgan Chase and Wells Fargo before the opening bell. Bank of America follows on Wednesday.
"We are in challenging times for large banks, where the pulse of investor activity may often impact the large banks asset and wealth management units," CFRA Research's Kenneth Leon wrote in a research note.
Leon said that the tone of the bank earnings calls is likely to be "subdued" as executives struggle to find a silver lining as investment banking fees continue to drop and geopolitical uncertainty remains elevated.
One more headache: A suddenprice war has seen every major online broker eliminate commission fees on stock and ETF trades. According to Leon, that trend does "not bode well" for investment banks and brokerage firms that depend on retail trading commissions.
BREXIT CRUNCH TIME
Can Boris Johnson deliver Brexit?
This is a big week for Brexit.
UK Prime Minister Boris Johnson will be seeking a deal with EU leaders at their meeting on October 17 and 18. If he gets one, an emergency session of the UK parliament will be needed to allow lawmakers to vote on the deal. They may not approve.
If Johnson comes home from Brussels having failed to secure a deal, the UK government is legally required to ask Brussels for another delay that would push the Brexit deadline beyond October 31. That would set the stage for a general election, and potentially, another referendum that would give British voters the chance to call the whole thing off.
"At this stage, it remains more likely that Brexit will be delayed again to make way for a snap election and/or a second referendum in the next months," analysts at Berenberg bank wrote on Friday.
Mind the pound: Market reaction could be strong, depending on how events unfold. News of progress in negotiations at the end of last week helped send the pound near $1.27, its highest level since June.
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VOICES
On Costco chicken
"If the Costco plant is successful, other major food retailers will likely make a business case for bringing animal protein needs in-house."
Costco's $4.99 rotisserie chicken comes at a huge price
We think last week's most interesting was about chicken. Yes, chicken.
Costco sells rotisserie chickens for $4.99. A good deal, right? But the chickens do more: They pull customers into stores and get them to browse the aisles.
The chickens have become almost a cult item. 91 million were sold last year, double the number from a decade earlier. They have their own Facebook page.
So Costco is willing to go to extreme lengths to keep its chickens at $4.99. For the past few years, it's been recruiting farmers for this moment: The official opening of a sprawling, $450 million poultry complex of its very own in Nebraska.
Costco will control the production process from farm to store, making key decisions down to the grain chickens eat and the type of eggs hatched. It's one of the largest-scale tests of a store's ability to become its own meat supplier. And there's no guarantee it will work.
Tuesday: Citigroup, BlackRock, Charles Schwab, JP Morgan Chase, Wells Fargo, Johnson & Johnson and United Airlines earnings. US to hike tariffs on $250 billion of Chinese goods.
Wednesday: Bank of America, BNY Mellon, PNC, Progressive, Alcoa and IBM earnings. US retail sales
Thursday: Ericsson, Morgan Stanley, Honeywell, Philip Morris earnings. US industrial production
Friday: American Express, Coca-Cola, Schlumberger earnings. China GDP
WHAT WE'RE READING AND WATCHING
▸ Jeff Bezos' master plan (The Atlantic) ▸ Can the NBA find a basketball superstar in India? (NYT Magazine) ▸ The FBI lost our son (WSJ) ▸ The trade-off: Can you balance profit and purpose? (FT)
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