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The fall month of September has its fair share of events and macro data to study.
In the Global Week Ahead, the European Central Bank (ECB) holds a crunch meeting, on whether or not to hike rates again. Meanwhile, key members in the Euro Area economy falter.
Across the pond, on Wednesday, the U.S. releases its latest Consumer Price Inflation (CPI) data.
Rising global oil prices raise angst on a rising non-core CPI rate in the USA.
Key U.K. jobs data, and a G20 summit hosted by India, marked by the absence of China's Xi Jinping, are also going live.
Here are Reuters’ five world market themes, reordered for equity traders—
(1) On Wednesday, trader eyes focus on a morning release of U.S. CPI data.
Stock markets are riding high on the Goldilocks narrative of ebbing inflation and resilient growth, heartened by an August U.S. jobs report that showed labor market conditions easing, but not at an alarming pace.
Wednesday's August U.S. inflation data, followed by Producer Price and Retail Sales numbers a day later, are the next test.
A headline number far above the 0.5% month-on-month increase expected by economists could revive inflation fears, a sharp drop-off would likely spark worries that growth is slowing too quickly after Fed rate hikes.
Goldman Sachs lowered its probability for a U.S recession in the next year to 15% from 20%.
For now, those in the Goldilocks camp appear to be right. Whether that lasts is another question.
(2) Oil prices are rising, along with worry about the macro consequences.
Brent crude has broken above $90 a barrel for the first time since November 2022 as Saudi Arabia and Russia look set to extend voluntary oil cuts to year-end.
Both will review their decisions monthly to consider deepening cuts or raising output, depending on market conditions.
Analysts warn that further price increases could face obstacles with demand likely to dip when U.S. refineries enter their September-October maintenance period, and from potentially higher supply from Iran, Venezuela and Libya.
For policymakers counting on price pressures abating fast, resurgent oil prices are problematic for the inflation outlook. At end-June, oil was down around -17% for the year; now it's up roughly +4% and rising.
(3) Mainland China macro-economic narrative remains poor.
Pressure is on China to pump up stimulus with investors disappointed with steps so far.
Mainland stocks suffered their worst session in weeks on Thursday, following dreary trade data.
Economic woes have undercut the currency, languishing on the weaker side of the key 7.3 per dollar line in offshore trading and resisting central bank efforts to support it through stronger-than-consensus official midpoint fixings.
Every data point is being watched closely. Next up are consumer and factory price data this weekend, with industrial output and retail sales out on the 15th.
Escalating tit-for-tat tensions with the United States are another worry. Washington is debating cutting off chip tech access to Huawei and SMIC; Beijing has reportedly banned official use of iPhones.
Chinese President Xi Jinping was spared hard questions at last weekend's G-20 summit in India: He did not attend, another worrying sign of distancing between China and the West.
(4) Does the ECB hike its policy rate on Thursday?
ECB rate hikes were once a done deal for traders, but a year and 425 bps of rises later, those days are long gone.
Inflation has slowed to just over 5% from nearly 12% last October, but is still too sticky for the ECB to relax. Economic activity is slowing fast, however, signaling stagnation for the Eurozone, and those record-paced hikes are squeezing financial conditions.
That conundrum has left traders betting on a roughly 40% chance of a hike and 60% chance of a pause when rates-setters meet on Thursday.
Policymakers are sending mixed signals. The doves urge caution; the most hawkish hawks say a pause is not a done deal, but haven't explicitly called for a hike either.
The decision is a coin toss. Expect more volatility either way.
(5) Fresh U.K. jobs numbers out on Tuesday. Next BoE Meeting is Sept. 21st.
The focus for markets on employment is on job growth. Not so much in Britain, where wages are a far bigger headache for Bank of England policymakers.
The unemployment rate has been edging above last year's 48-year low, indicating some softening in the jobs market, while basic earnings are rising at record pace.
Workers are seeing wage growth in real terms for the first time in two years, albeit at just 0.1%. Good news for anyone paying bills, bad news for anyone trying to anchor inflation.
BoE Governor Andrew Bailey knows this all too well, having made headlines last February by calling for workers to show pay restraint, as real wage growth fell.
The question the BoE will have to answer on Sept 12th, when August jobs numbers are released, is how to get the inflation genie back in the bottle.
Zacks #1 Rank (STRONG BUY) Stocks
Let’s look into three major growth stocks, currently found on our #1 list.
(1) Uber Technologies (UBER - Free Report) : This is a $46 stock with a market cap of $93.8B found in the Internet-Services industry. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of C.
Image Source: Zacks Investment Research
Uber Technologies, based in San Francisco, CA, was incorporated in Delaware in July 2010. The company went public in May 2019. Its IPO price was $45. Uber closed its IPO on May 14. During the process, the company issued and sold 180 million shares of its common stock.
Uber has expanded its presence in multiple countries across the globe including the United States and Canada, Latin America, Europe, the Middle East and Asia (excluding China). Currently, it is trying to expand further.
Uber focuses on developing and supporting proprietary technology applications or platforms. These platforms should enable independent providers of ridesharing services, Uber Eats meal preparation and delivery services to transact with riders (for ridesharing services) and eaters (for meal preparation and delivery services). The company has expanded its Delivery (formerly Eats) unit with the acquisition of Postmates in December 2020.
Driver partners offer ridesharing services to riders through a plethora of offerings based on vehicle type and/or the number of riders. Meanwhile, restaurant and delivery partners are responsible for offering meal preparation and delivery services, respectively. Uber commits to transition to a zero-emission platform entirely by 2040 in order to reduce the environmental impact of its mobility business.
These apart, Uber offers freight transportation services to shippers within the freight industry. The company is also responsible for leasing vehicles to third-parties who often utilize them for providing ridesharing or eats services through its platforms.
Uber primarily reports through three segments, namely, Mobility (formerly Rides), Delivery and Freight.
In the first quarter of 2023, 49% of Uber’s revenues came from Mobility. Meanwhile, Delivery and Freight contributed 35.1% and 15.9% to the top line, respectively.
Revenues from Mobility (Uber’s core business) are derived mainly from fees paid by its driver partners for using Uber’s platforms and other services. Meanwhile, delivery revenues are derived from restaurant and delivery partners.
(2) MercadoLibre (MELI - Free Report) : This is a $1,436 stock with a market cap of $71.4B found in the Internet-Commerce industry. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Buenos Aires, Argentina-based MercadoLibre, Inc. is one of the largest e-commerce platforms in South America.
The company is a market leader in e-commerce in Brazil, Argentina, Colombia, Chile, Ecuador, Costa Rica, Peru, Mexico and Uruguay based on unique visitors and page views.
The company also operates e-commerce platform in Honduras, Nicaragua, Dominican Republic, Salvador, Panama, Guatemala, Paraguay, Bolivia and Portugal.
MercadoLibre reported revenues of $10.5 billion in 2022. The company offers a bunch of six integrated e-commerce services:
MercadoLibre Marketplace enables businesses and individuals to conduct sales, purchase online and list their merchandise.
MercadoLibre Classifieds offers online classified listing services for motor vehicles, real estate and services. These listing charge only optional placement fees and hence they are different from Marketplace listings.
MercadoPago FinTech platform allows users to send and receive payments seamlessly within MercadoLibre’s marketplace. Outside of this, merchants are allowed to process payments via websites, mobile apps and mobile point of sale.
MercadoLibre advertising program enables advertisers and seller to display their product ads on the company’s webpages.
MercadoShops online webstores solution aids users in managing and promoting their online stores.
MercadoEnvios logistics service provides integration with third-party carriers and logistics service providers to the sellers on the company’s platform.
MercadoLibre has four reportable geographic segments— Brazil, Argentina, Mexico and Other Countries. In 2022, Brazil generated 53.8% of the company’s revenues. Argentina, Mexico and Other Countries generated 23.7%, 17.7% and 4.8% of revenues, respectively.
Effective Dec 1, 2017, MercadoLibre de-consolidated its Venezuelan subsidiaries. The company no longer includes the balances, results of operations and cash flows of the Venezuelan subsidiaries in its consolidated financial statements.
(3) ABB (ABBNY - Free Report) : This is a $37 stock with a market cap of $70.4B found in the Manufacturing Electronics industry. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of B.
Image Source: Zacks Investment Research
ABB is a leading technology company. Its products and services can be used in automated manufacturing, providing digital solutions, electrification of industry and transport and enhancing productivity.
It reports business under 4 segments: Electrification, Robotics & Discrete Automation, Process Automation and Motion.
Electrification is responsible for the manufacture and sale of products and services, including low and medium voltage switchgear, control products, DIN rail components, wiring accessories and installation material for a plethora of applications.
Robotics & Discrete Automation: This segment includes the machine and factory automation solutions from the business of B&R and a wide-ranging robotics solutions and applications suite.
Process Automation: This provides control and plant optimization systems and automation products and solutions for optimizing the productivity of industrial processes.
Motion: The segment specializes in supplying motors, drives and generator products.
Key Global Macro
On Monday, Italy’s Industrial Output for July has come out lower than expected to +0.3%. The prior month was up +0.5% m/m. Still no sign there, yet, of a looming recession.
On Tuesday, the U.K.’s ILO unemployment rate for July comes out. The prior month has a 4.2% rate.
Mainland China’s Foreign Direct Investment (FDI) for August comes out. Notably, the prior month showed a declining -4% y/y rate.
On Wednesday, U.K. industrial production data for July comes out. I see a +0.7% m/m prior reading — stronger than Italy.
The August broad and core CPI comes out for the USA. The prior broad reading was +3.2%. The core reading was +4.7%.
On Thursday, Australia’s unemployment rate is 3.7%. The August data refreshes.
The ECB monetary policy decision comes out. Staying at 3.75% is the consensus.
On Friday, Mainland China’s industrial production for August should be +4.0% y/y, after posting a +3.7% y/y reading the month prior. An added +0.3% m/m lift is implied by that data.
Conclusion
What about the outlook for Q3 S&P500 earnings?
Here is what Zacks Research Director Sheraz Mian wrote on September 1st, 2023:
“Since early April 2023, earnings estimates for full-year 2023 have declined by -0.34% for the S&P 500 index as a whole, with declining estimates for 9 of the 16 Zacks sectors, particularly the Energy sector, offsetting notable gains with other sectors.”
“Sectors enjoying positive estimate revisions in this time period include Tech, Construction, Autos, Consumer Discretionary, Industrial Products, Retail and Consumer Discretionary.”
“The expectation currently is for S&P500 earnings to decline by -1.5% in Q3 from the same period last year on +0.7% higher revenues.”
“This would follow the -7.3% decline on +0.2% higher revenues in 2023 Q2.”
Enjoy a successful trading week.
Regards,
John Blank Zacks Chief Equity Strategist and Economist
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August CPI in Focus: Global Week Ahead
The fall month of September has its fair share of events and macro data to study.
In the Global Week Ahead, the European Central Bank (ECB) holds a crunch meeting, on whether or not to hike rates again. Meanwhile, key members in the Euro Area economy falter.
Across the pond, on Wednesday, the U.S. releases its latest Consumer Price Inflation (CPI) data.
Rising global oil prices raise angst on a rising non-core CPI rate in the USA.
Key U.K. jobs data, and a G20 summit hosted by India, marked by the absence of China's Xi Jinping, are also going live.
Here are Reuters’ five world market themes, reordered for equity traders—
(1) On Wednesday, trader eyes focus on a morning release of U.S. CPI data.
Stock markets are riding high on the Goldilocks narrative of ebbing inflation and resilient growth, heartened by an August U.S. jobs report that showed labor market conditions easing, but not at an alarming pace.
Wednesday's August U.S. inflation data, followed by Producer Price and Retail Sales numbers a day later, are the next test.
A headline number far above the 0.5% month-on-month increase expected by economists could revive inflation fears, a sharp drop-off would likely spark worries that growth is slowing too quickly after Fed rate hikes.
Goldman Sachs lowered its probability for a U.S recession in the next year to 15% from 20%.
For now, those in the Goldilocks camp appear to be right. Whether that lasts is another question.
(2) Oil prices are rising, along with worry about the macro consequences.
Brent crude has broken above $90 a barrel for the first time since November 2022 as Saudi Arabia and Russia look set to extend voluntary oil cuts to year-end.
Both will review their decisions monthly to consider deepening cuts or raising output, depending on market conditions.
Analysts warn that further price increases could face obstacles with demand likely to dip when U.S. refineries enter their September-October maintenance period, and from potentially higher supply from Iran, Venezuela and Libya.
For policymakers counting on price pressures abating fast, resurgent oil prices are problematic for the inflation outlook. At end-June, oil was down around -17% for the year; now it's up roughly +4% and rising.
(3) Mainland China macro-economic narrative remains poor.
Pressure is on China to pump up stimulus with investors disappointed with steps so far.
Mainland stocks suffered their worst session in weeks on Thursday, following dreary trade data.
Economic woes have undercut the currency, languishing on the weaker side of the key 7.3 per dollar line in offshore trading and resisting central bank efforts to support it through stronger-than-consensus official midpoint fixings.
Every data point is being watched closely. Next up are consumer and factory price data this weekend, with industrial output and retail sales out on the 15th.
Escalating tit-for-tat tensions with the United States are another worry. Washington is debating cutting off chip tech access to Huawei and SMIC; Beijing has reportedly banned official use of iPhones.
Chinese President Xi Jinping was spared hard questions at last weekend's G-20 summit in India: He did not attend, another worrying sign of distancing between China and the West.
(4) Does the ECB hike its policy rate on Thursday?
ECB rate hikes were once a done deal for traders, but a year and 425 bps of rises later, those days are long gone.
Inflation has slowed to just over 5% from nearly 12% last October, but is still too sticky for the ECB to relax. Economic activity is slowing fast, however, signaling stagnation for the Eurozone, and those record-paced hikes are squeezing financial conditions.
That conundrum has left traders betting on a roughly 40% chance of a hike and 60% chance of a pause when rates-setters meet on Thursday.
Policymakers are sending mixed signals. The doves urge caution; the most hawkish hawks say a pause is not a done deal, but haven't explicitly called for a hike either.
The decision is a coin toss. Expect more volatility either way.
(5) Fresh U.K. jobs numbers out on Tuesday. Next BoE Meeting is Sept. 21st.
The focus for markets on employment is on job growth. Not so much in Britain, where wages are a far bigger headache for Bank of England policymakers.
The unemployment rate has been edging above last year's 48-year low, indicating some softening in the jobs market, while basic earnings are rising at record pace.
Workers are seeing wage growth in real terms for the first time in two years, albeit at just 0.1%. Good news for anyone paying bills, bad news for anyone trying to anchor inflation.
BoE Governor Andrew Bailey knows this all too well, having made headlines last February by calling for workers to show pay restraint, as real wage growth fell.
The question the BoE will have to answer on Sept 12th, when August jobs numbers are released, is how to get the inflation genie back in the bottle.
Zacks #1 Rank (STRONG BUY) Stocks
Let’s look into three major growth stocks, currently found on our #1 list.
(1) Uber Technologies (UBER - Free Report) : This is a $46 stock with a market cap of $93.8B found in the Internet-Services industry. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of C.
Image Source: Zacks Investment Research
Uber Technologies, based in San Francisco, CA, was incorporated in Delaware in July 2010. The company went public in May 2019. Its IPO price was $45. Uber closed its IPO on May 14. During the process, the company issued and sold 180 million shares of its common stock.
Uber has expanded its presence in multiple countries across the globe including the United States and Canada, Latin America, Europe, the Middle East and Asia (excluding China). Currently, it is trying to expand further.
Uber focuses on developing and supporting proprietary technology applications or platforms. These platforms should enable independent providers of ridesharing services, Uber Eats meal preparation and delivery services to transact with riders (for ridesharing services) and eaters (for meal preparation and delivery services). The company has expanded its Delivery (formerly Eats) unit with the acquisition of Postmates in December 2020.
Driver partners offer ridesharing services to riders through a plethora of offerings based on vehicle type and/or the number of riders. Meanwhile, restaurant and delivery partners are responsible for offering meal preparation and delivery services, respectively. Uber commits to transition to a zero-emission platform entirely by 2040 in order to reduce the environmental impact of its mobility business.
These apart, Uber offers freight transportation services to shippers within the freight industry. The company is also responsible for leasing vehicles to third-parties who often utilize them for providing ridesharing or eats services through its platforms.
Uber primarily reports through three segments, namely, Mobility (formerly Rides), Delivery and Freight.
In the first quarter of 2023, 49% of Uber’s revenues came from Mobility. Meanwhile, Delivery and Freight contributed 35.1% and 15.9% to the top line, respectively.
Revenues from Mobility (Uber’s core business) are derived mainly from fees paid by its driver partners for using Uber’s platforms and other services. Meanwhile, delivery revenues are derived from restaurant and delivery partners.
(2) MercadoLibre (MELI - Free Report) : This is a $1,436 stock with a market cap of $71.4B found in the Internet-Commerce industry. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Buenos Aires, Argentina-based MercadoLibre, Inc. is one of the largest e-commerce platforms in South America.
The company is a market leader in e-commerce in Brazil, Argentina, Colombia, Chile, Ecuador, Costa Rica, Peru, Mexico and Uruguay based on unique visitors and page views.
The company also operates e-commerce platform in Honduras, Nicaragua, Dominican Republic, Salvador, Panama, Guatemala, Paraguay, Bolivia and Portugal.
MercadoLibre reported revenues of $10.5 billion in 2022. The company offers a bunch of six integrated e-commerce services:
MercadoLibre has four reportable geographic segments— Brazil, Argentina, Mexico and Other Countries. In 2022, Brazil generated 53.8% of the company’s revenues. Argentina, Mexico and Other Countries generated 23.7%, 17.7% and 4.8% of revenues, respectively.
Effective Dec 1, 2017, MercadoLibre de-consolidated its Venezuelan subsidiaries. The company no longer includes the balances, results of operations and cash flows of the Venezuelan subsidiaries in its consolidated financial statements.
(3) ABB (ABBNY - Free Report) : This is a $37 stock with a market cap of $70.4B found in the Manufacturing Electronics industry. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of B.
Image Source: Zacks Investment Research
ABB is a leading technology company. Its products and services can be used in automated manufacturing, providing digital solutions, electrification of industry and transport and enhancing productivity.
It reports business under 4 segments: Electrification, Robotics & Discrete Automation, Process Automation and Motion.
Electrification is responsible for the manufacture and sale of products and services, including low and medium voltage switchgear, control products, DIN rail components, wiring accessories and installation material for a plethora of applications.
Robotics & Discrete Automation: This segment includes the machine and factory automation solutions from the business of B&R and a wide-ranging robotics solutions and applications suite.
Process Automation: This provides control and plant optimization systems and automation products and solutions for optimizing the productivity of industrial processes.
Motion: The segment specializes in supplying motors, drives and generator products.
Key Global Macro
On Monday, Italy’s Industrial Output for July has come out lower than expected to +0.3%. The prior month was up +0.5% m/m. Still no sign there, yet, of a looming recession.
On Tuesday, the U.K.’s ILO unemployment rate for July comes out. The prior month has a 4.2% rate.
Mainland China’s Foreign Direct Investment (FDI) for August comes out. Notably, the prior month showed a declining -4% y/y rate.
On Wednesday, U.K. industrial production data for July comes out. I see a +0.7% m/m prior reading — stronger than Italy.
The August broad and core CPI comes out for the USA. The prior broad reading was +3.2%. The core reading was +4.7%.
On Thursday, Australia’s unemployment rate is 3.7%. The August data refreshes.
The ECB monetary policy decision comes out. Staying at 3.75% is the consensus.
On Friday, Mainland China’s industrial production for August should be +4.0% y/y, after posting a +3.7% y/y reading the month prior. An added +0.3% m/m lift is implied by that data.
Conclusion
What about the outlook for Q3 S&P500 earnings?
Here is what Zacks Research Director Sheraz Mian wrote on September 1st, 2023:
“Since early April 2023, earnings estimates for full-year 2023 have declined by -0.34% for the S&P 500 index as a whole, with declining estimates for 9 of the 16 Zacks sectors, particularly the Energy sector, offsetting notable gains with other sectors.”
“Sectors enjoying positive estimate revisions in this time period include Tech, Construction, Autos, Consumer Discretionary, Industrial Products, Retail and Consumer Discretionary.”
“The expectation currently is for S&P500 earnings to decline by -1.5% in Q3 from the same period last year on +0.7% higher revenues.”
“This would follow the -7.3% decline on +0.2% higher revenues in 2023 Q2.”
Enjoy a successful trading week.
Regards,
John Blank
Zacks Chief Equity Strategist and Economist