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Mnuchin says Trump would lobby senators over stimulus, decision day for Johnson, and retail sales data due. 

Trump trade 

Treasury Secretary Steven Mnuchin told House Speaker Nancy Pelosi that President Donald Trump would weigh in with Senate Republicans if Democrats and the administration agreed a stimulus package. Senate Majority Leader Mitch McConnell rejected that, saying he could not sell a much larger package to his members, and that the Senate would vote on a narrow stimulus plan worth about $500 billion next week. With many GOP Senators seeking re-election on Nov. 3, and an increasing number of them seeing the possibility of a defeat for Trump, the president may no longer have the political capital needed to force their hands. 

Decision day

British Prime Minister Boris Johnson is set to decide today whether to abandon trade talks with the European Union after the region's leaders refused to give any ground at their summit in Brussels. Johnson had previously indicated he would walk away from negotiations by Oct. 15 if there was no clear agreement in sight by then. While an agreement remains elusive, the EU's chief negotiator Michel Barnier said they remain determined to reach a "fair deal."

Retail sales 

Economists looking to measure the pace of the U.S. recovery will get a health-check on the U.S. consumer at 8:30 a.m. Eastern Time when retail sales data for September is published. The median estimate is for a 0.8% increase, an improvement on the previous month, but not enough to move the dial on expectations that the recovery will be a long and slow one. Richmond Fed President Thomas Barkin recently cited the resurgence in Covid cases as an extra headwind to a rebound in economic activity. The U.S. reported 59,797 new infections yesterday, with the death toll at 217,702, according to Johns Hopkins data. 

Markets mixed

Investors are getting some confidence from a slew of positive corporate news as coronavirus and stimulus worries continue to dominate the macro picture. Overnight the MSCI Asia Pacific Index slipped 0.2% while Japan's Topix index closed 0.8% lower. In Europe, the Stoxx 600 Index was 0.5% higher at 5:50 a.m. with automakers among the best performers after a surprise gain in car sales in the region. S&P 500 futures pointed to little change at the open, the 10-year Treasury yield was at 0.726% and gold was slightly lower. 

Coming up...

U.S. industrial and manufacturing data for September is published at 9:15 a.m. University of Michigan Consumer Sentiment and Business Inventories are at 10:00 a.m. The latest Baker Hughes rig count is at 1:00 p.m. and TIC flows data for August rounds off the economic calendar at 4:00 p.m. St. Louis Fed President James Bullard and New York Fed President John Williams speak later. Honeywell International Inc., Bank of New York Mellon Corp, State Street Corp and Schlumberger NV are among the companies reporting results. 

What we've been reading

This is what's caught our eye over the past 24 hours. 

And finally, here's what Katherine's interested in this morning

Wall Street's biggest banks kicked off third-quarter earnings season in a big way this week, but financial shares overall were limp -- and part of the blame for that lies with the bond market.

The earnings reports themselves came with many superlatives: trading revenue jumped more than 20% for a third straight quarter, net income for the five biggest U.S. firms more than tripled that of the second quarter, and loan loss provisions -- the boogeyman from last earnings season -- grew by a scant $172 million for the top five. By most measures, it's fair to say that the big banks passed this round with flying colors.

The stock market tells a different story. Financial shares did get a lift on Thursday, but are still down about 1% for the week so far, despite some solid earnings reports. Zooming out, the sector is down nearly 19% year-to-date -- meanwhile, the S&P 500 index is roughly 8% higher in 2020.

This chart courtesy of Bloomberg's own Joe Weisenthal helps to explain why investors are still wary overall. It plots the 10-year Treasury yield against the ratio of the Financial Select Sector SPDR exchange-traded fund and the SPDR S&P 500 ETF Trust. The correlation is clear:

A basic tenet of banking's business model is to borrow at short-term rates and lend out at longer rates. That's a tough way to turn a profit when the 2-year to 10-year yield curve can't seem to break above 60 basis points. And with the budding reflation bet in the bond market held hostage by stop-and-start U.S. stimulus talks, it's unclear what will generate the sustained inflation needed for the long-end to sell-off meaningfully.

Follow Bloomberg's Katherine Greifeld @kgreifeld

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