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Not Rewarding Surprises Like It Used To: Global Week Ahead

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In the Global Week Ahead, USA large-cap stock markets look quieter, with so many earnings results already priced in. Third quarter earnings season has 81% of S&P500 companies completed.

To date, the market has been rewarding upside earnings surprises less than average and is punishing downside earnings surprises more than average.

Why? Trump tax ebullience got this market ahead of itself on valuation. The forward P/E ratio is at 18.0. That’s high, folks.

Yet, other than for insurance companies, results have been good. The earnings growth rate for the third quarter is at +5.9%.

48 S&P500 companies report results in the week ahead. Interesting names to watch include:

Monday: Knight Swift Transportation (KNX - Free Report) , Manitowoc (MTW - Free Report)

Tuesday: Hecla Mining (HL - Free Report) , Royal Caribbean (RCL - Free Report)

Wednesday: MGM Resorts (MGM - Free Report) , Regeneron Pharma (REGN - Free Report)

Thursday: Brookfield Asset Management (BAM - Free Report) , Macy’s (M - Free Report)

Friday: Arcelor Mittal (MT - Free Report)

For the rest of the world, Reuter’s bureau in London identified five World Market Themes.

(1) President Trump Tours Asia

U.S. President Donald Trump is on his first trip to Asia. He has stopped in Japan already, and will go on to South Korea, China, Vietnam and the Philippines.

Security concerns in the Korean peninsula and the South China Sea will grab a lot of attention.

But investors will also look at trade talks, with Trump particularly keen to address his country’s vast trade deficit with China that Beijing calls unintentional, but which he calls “horrible.”

(2) Bitcoin Talk Bubbles Over

Investors’ appetite for bitcoin appears to have no bounds.
The digital currency climbed above $7,000 on Thursday for the first time ever, after an astronomical increase of more than 900 percent over the past 12 months. News that the world’s biggest derivatives exchange operator, CME Group, was set to launch bitcoin futures was seen as a significant step in bitcoin’s road to mainstream adoption, driving the latest surge in price.

But with high-profile investors such as Warren Buffett and the head of Credit Suisse saying in recent days that the bitcoin market represents a bubble, could that be set to burst in spectacular fashion?

What is to stop a rival cryptocurrency — of which there is a potentially unlimited quantity — from becoming investors’ digital currency of choice?

With bitcoin now worth more than $120 billion, more than Citi or Goldman Sachs, the consequences of a sudden crash could be severe.

(3) The JOLTS Labor Market Survey Is Out for the USA

The Nov. 7th release of the September Job Opening and Labor Turnover (JOLT) survey will show whether demand for labor has held up or is in need of an — ahem — jolt.
At the moment, the ratio of job openings versus quit jobs is close to 2 to 1, hovering in a range close to the all-time peak of 2.12 hit in July 2015.

(4) Italian Bank Earnings Are Out

Italy’s biggest banks, including UniCredit, Intesa and Banco BPM, report their latest earnings and they could make encouraging reading following the euro zone-wide pick-up in growth and a strong rally in Italian debt over the last month.

It certainly seems a long time since last year’s bail out of problem child Monte dei Paschi di Siena. It is now back in the market, and the main Italian banks are comfortably outperforming their euro zone peers in share performance, so the results round should be telling.

(5) Ah Yes, VENEZUELA!

After what feels like years of speculation, OPEC member Venezuela’s socialist leader Nicolas Maduro wants to restructure the ailing country’s foreign debt.

Maduro has invited Venezuelan bondholders to a Nov. 13th meeting in Caracas to discuss the matter, although getting clearance from the compliance department could be interesting for the bankers involved.

Vice President Tareck El Aissami, who is on a U.S. blacklist for alleged drug trafficking, said the country remained committed to paying all its debt but wanted to reformulate terms with creditors, which is likely to mean some lively bouts of price discovery.

Top Zacks Rank Stocks

(1) Exxon Mobil (XOM - Free Report) : This is the $352 billion market cap oil giant. The long-term Zacks VGM score is C.
With all of the political chaos that just opened in Saudi Arabia over the weekend, keep an eye on this Zacks #1 Rank conglomerate, petrochemical, oil and gas stock.

(2) Intel (INTC - Free Report) : Semiconductor, semiconductors. This 2017 market couldn’t have risen as far as it did without them. Now, 2018 approaches.

This $127 billion in market cap stock is the core holding here. And after a stellar quarterly earnings report, it is back to a #1 Rank. This stock’s long-term Zacks VGM score is B. I see more room to run here.

(3) Mastercard (MA - Free Report) : What would the world be (barring a move to Bitcoin) without credit cards? This is a $159 billion market cap stock now. That tells us the vast, vast majority of us use credit cards to make online and in store purchases.  

The Zacks Rank is a #1 and the long-term Zacks score is a D. With an F for Zacks Value, this bull story is well and truly overbought.

Key Global Macro—

A wave of 5 central bank decisions happens across Asia. Think of Australia, New Zealand, Malaysia, Indonesia and the Philippines. Don’t expect any  change here.

On Thursday, the central bank’s of Mexico (Banxico) and Peru (Banco Central de Reserva del Peru) issue policy decisions.

Expect Banxico to hold its policy rate at 7.0% for the third straight.

Meeting: The last hike happened in June. Peru should hold fast at 3.5%.

Mexico’s central bankers should look through a transitory soft patch in Mexico’s economy during Q3 that was influenced by hurricanes and earthquakes.

On Friday, Brazil’s inflation rate will be a focus.

On Monday, Indonesia’s GDP growth rate came in at +5.0% y/y.

The final composite Eurozone Purchasing Manager’s Index (PMI) came out. The reading was 56, better than the prior 55.9.

The Markit PMI for Brazil was 49.5, down from 51.1.  50 marks expansion, so this is important data.

On Tuesday, the Reserve Bank of Australia (RBA) should keeps its overnight rate at 1.5%.

Industrial production in Germany comes out. The prior was 4.7% y/y.

Russia’s CPI comes out. The prior was +3.0% y/y, and the forecast is +2.8% y/y.

On Wednesday, the National Bank of Poland issues its new base rate. The rate has been 1.5% and is not expected to change.

Portugal’s unemployment rate is 8.8%. We get a new reading here. Remember the PIiGs? That seems long gone now. Time moves on fast and worries do change.

The Reserve Bank of New Zealand (RBNZ) should keep its policy rate at 1.75%. It’s similar to the RBA in Australia.

On Thursday, Malaysia’s central bank (BNM) issues its overnight policy rate. The 3.0% rate is not expected to change.

The central bank of the Philippines (BSP) should also stay pat at 3.0%.

Greece’s unemployment rate is 21%.

U.S. initial claims should remain low at 229K.

On Friday, Singapore’s GDP growth rate comes out. 4.6% y/y was the prior.

Brazil’s IBGE inflation rate (their CPI) comes out. The look is for 2.73% y/y from 2.54%.

University of Michigan consumer sentiment gets tested again, in the USA. The prior was 100.7.