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For the Global Week Ahead, here are five Reuters themes likely to dominate the thinking of investors and traders alike.
I list them in importance to equity markets.
(1) Where will U.S. earnings go from here?
Amid trade wars signs of slowing economic growth, world markets remain relatively robust. Bumper U.S. company earnings are part of the reason.
Thanks to tax-cut tailwinds, Q1 earnings growth clocked in at 26.6 percent and the second quarter, starting next week, should moderate only slightly, to 20.7 percent.
However, the season is being clouded by trade tensions and their impact on corporate profits. So analysts will closely scrutinize outlook statements to see whether to adjust numbers for the rest of 2018. Right now, 23.4 percent earnings growth is forecast for the third quarter and 20.2 percent for the fourth.
Financials stocks won big from the tax cuts — their Q1 bottom lines were possibly fattened by as much as $5 billion, many estimate. So, eyes will be on Wells Fargo, Citi and JPMorgan reports on Friday, July 13th. Thomson Reuters I/B/E/S forecast banks’ Q2 growth at 22 percent.
But numbers are seen less toppy next year, slimming to 7.3 percent in the first quarter and just over ten percent for the three subsequent quarters.
(2) Central bank heads speak
The Fed is pressing ahead with raising interest rates, global financial conditions are tightening and investors are nervous about the global economy. Emerging markets are under the cosh and bond yield curves are flattening — the U.S. yield curve is less than 30 basis points from inversion, the signal that recession is coming.
This is the backdrop to a series of speeches this week from some of the world’s most powerful central bankers — Bank of Japan governor Kuroda, European Central Bank chief Draghi, Bank of England boss Carney and Bank of Canada’s Poloz all take the stand. The BoC will likely also raise interest rates next week.
Here’s the balance they will try to strike: signal an exit from crisis-era stimulus but not so fast that growth and investor confidence will plummet. It won’t be easy. As it stands, the current economic expansion and bull market are very long in the tooth. Fed tightening alone could be enough to end them both.
(3) More emerges from the start of a U.S./China Trade War
As U.S. tariffs on Chinese imports kick in, President Donald Trump is threatening to tax goods worth $500 billion — roughly the value of all U.S. imports from China in 2017.
What could Beijing do to ease the impact on its economy?
In theory, it could ease policy. It has also subtly hinted at using yuan depreciation as a retaliatory tool, by allowing the currency to post its biggest monthly loss on record in June.
Though capital outflows are a risk. Upcoming data will provide a crucial insight into China’s economy — the weekend brings the latest FX reserves picture; consumer and factory inflation figures emerge on July 10; trade data due July 13 will show if trade angst had already hit exports and imports in June. All that will set markets up for Q2 GDP due the following week.
Tensions with Washington may already have slowed economic growth, Reuters polls predict.
(4) Teresa May and Brexit make headlines
Britain’s markets are in for another bumpy ride next week. They will be digesting the outcome of a crunch Brexit showdown at the government’s country retreat on Friday.
Resignations, rebellions and coup plots have all been rumored if Prime Minister Theresa May doesn’t back a clean break from the EU. At the same time, British industrial giants are sounding shrill warnings of mass exodus if EU trade ties are lost.
May will then get a visit from Germany’s Angela Merkel on Tuesday — assuming she hasn’t been ousted by then. Merkel’s visit is part of a Western Balkans summit where, ironically, the main agenda is EU integration. But she will make time for a Brexit powwow with May.
And it’s not just politics. On Tuesday, Britain publishes monthly growth estimates for the first time, a move intended to give policymakers more timely information about the economy. The numbers will be released alongside output data for the services, industrial and construction sectors, and trade figures.
(5) WTI crude oil prices
Coming days may bring more volatility to oil markets too.
They have already been on a rollercoaster, rising almost to $80 per barrel after output cuts by the Organization of Petroleum Exporting Countries (OPEC) and allies.
OPEC has agreed to ease output curbs but prices are receiving fresh impetus from Washington’s new sanctions against Tehran. Those, in turn, have led Iran’s Revolutionary Guards to threaten a blockade of the Strait of Hormuz, the world’s most important oil artery through which a fifth of the world’s oil consumption passes. Tensions are running high, with the U.S. Navy standing ready to ensure free navigation through the channel.
High oil prices are wiping out any benefits the U.S. economy might enjoy from Trump’s tax cuts. But while he has lashed out at the cartel and urged it to raise production, he is also pressuring governments to stop Iranian purchases. Such rhetoric may push oil prices higher still. As will any outbreak of hostilities in Hormuz.
???Top Zacks #1 Rank (STRONG BUY) Stocks—
Glencore (GLNCY - Free Report) : This is a $62B market cap mining stock. Oil and natural resource stocks like this are popping up in the top Zacks Rank these days. At $8.65 a share, this one may be cheap too. The long-term Zacks VGM score of A is attractive.
Microchip Technology (MCHP - Free Report) : This is a $22B semiconductor (analog and mixed) company. Where do the chip companies go with the U.S.-China trade war on? This is one stock to check in on with respect to that.
Molina Healthcare (MOH - Free Report) : This is a $6B market cap HMO stock, with a $100 share price. I think the large Medical Services niche is worth investing in, while the worries ramp up on the global economy. The long-term Zacks VGM score is A.
Key Global Macro--
There is not much in the way of data catalysts coming out this week.
I would pay most attention to the central bank policymaker speeches. On Tuesday, the central banks of Poland and Canada hand down monetary policy decisions.
On Monday, Brazil’s inflation rate could be heading in the wrong direction. The prior +5.2% y/y reading may be upped to +8.08%. Add that to the woes of this economy.
Mexico’s inflation rate is also heading higher, but not as dramatically. +4.54% y/y could get to +4.66% y/y.
On Tuesday, Argentina’s repo rate should be steady at 40%. I wish that were good news here.
The U.S. NFIB for small business optimism index comes out. It has been high at 107.8.
South Korea’s unemployment rate is 4.0%. We get a new reading.
On Wednesday, Poland’s central bank should keep its base rate at 1.5%.
The Bank of Canada also sets in policy rate. It has been 1.25%.
On Thursday, Germany’s HICP consumer inflation rate comes out. It should stay at 2.1% y/y. This is good for European Central Bank monetary policy.
In comparison, the French HICP looks a bit hot at +2.4% y/y.
The CPI in India may go from 4.87% y/y to 5.15% y/y.
U.S. initial claims should stay low after last week’s 231K.
On Friday, Japan’s GDP growth rate comes out. It looks to be -0.6% last quarter. In comparison, Singapore’s quarterly growth rate was +1.7% q/q.
Iceland’s unemployment rate is rock bottom at 2.2%. Remember the financial crisis started here before 2008.
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The Big Banks Report: Global Week Ahead
For the Global Week Ahead, here are five Reuters themes likely to dominate the thinking of investors and traders alike.
I list them in importance to equity markets.
(1) Where will U.S. earnings go from here?
Amid trade wars signs of slowing economic growth, world markets remain relatively robust. Bumper U.S. company earnings are part of the reason.
Thanks to tax-cut tailwinds, Q1 earnings growth clocked in at 26.6 percent and the second quarter, starting next week, should moderate only slightly, to 20.7 percent.
However, the season is being clouded by trade tensions and their impact on corporate profits. So analysts will closely scrutinize outlook statements to see whether to adjust numbers for the rest of 2018. Right now, 23.4 percent earnings growth is forecast for the third quarter and 20.2 percent for the fourth.
Financials stocks won big from the tax cuts — their Q1 bottom lines were possibly fattened by as much as $5 billion, many estimate. So, eyes will be on Wells Fargo, Citi and JPMorgan reports on Friday, July 13th. Thomson Reuters I/B/E/S forecast banks’ Q2 growth at 22 percent.
But numbers are seen less toppy next year, slimming to 7.3 percent in the first quarter and just over ten percent for the three subsequent quarters.
(2) Central bank heads speak
The Fed is pressing ahead with raising interest rates, global financial conditions are tightening and investors are nervous about the global economy. Emerging markets are under the cosh and bond yield curves are flattening — the U.S. yield curve is less than 30 basis points from inversion, the signal that recession is coming.
This is the backdrop to a series of speeches this week from some of the world’s most powerful central bankers — Bank of Japan governor Kuroda, European Central Bank chief Draghi, Bank of England boss Carney and Bank of Canada’s Poloz all take the stand. The BoC will likely also raise interest rates next week.
Here’s the balance they will try to strike: signal an exit from crisis-era stimulus but not so fast that growth and investor confidence will plummet. It won’t be easy. As it stands, the current economic expansion and bull market are very long in the tooth. Fed tightening alone could be enough to end them both.
(3) More emerges from the start of a U.S./China Trade War
As U.S. tariffs on Chinese imports kick in, President Donald Trump is threatening to tax goods worth $500 billion — roughly the value of all U.S. imports from China in 2017.
What could Beijing do to ease the impact on its economy?
In theory, it could ease policy. It has also subtly hinted at using yuan depreciation as a retaliatory tool, by allowing the currency to post its biggest monthly loss on record in June.
Though capital outflows are a risk. Upcoming data will provide a crucial insight into China’s economy — the weekend brings the latest FX reserves picture; consumer and factory inflation figures emerge on July 10; trade data due July 13 will show if trade angst had already hit exports and imports in June. All that will set markets up for Q2 GDP due the following week.
Tensions with Washington may already have slowed economic growth, Reuters polls predict.
(4) Teresa May and Brexit make headlines
Britain’s markets are in for another bumpy ride next week. They will be digesting the outcome of a crunch Brexit showdown at the government’s country retreat on Friday.
Resignations, rebellions and coup plots have all been rumored if Prime Minister Theresa May doesn’t back a clean break from the EU. At the same time, British industrial giants are sounding shrill warnings of mass exodus if EU trade ties are lost.
May will then get a visit from Germany’s Angela Merkel on Tuesday — assuming she hasn’t been ousted by then. Merkel’s visit is part of a Western Balkans summit where, ironically, the main agenda is EU integration. But she will make time for a Brexit powwow with May.
And it’s not just politics. On Tuesday, Britain publishes monthly growth estimates for the first time, a move intended to give policymakers more timely information about the economy. The numbers will be released alongside output data for the services, industrial and construction sectors, and trade figures.
(5) WTI crude oil prices
Coming days may bring more volatility to oil markets too.
They have already been on a rollercoaster, rising almost to $80 per barrel after output cuts by the Organization of Petroleum Exporting Countries (OPEC) and allies.
OPEC has agreed to ease output curbs but prices are receiving fresh impetus from Washington’s new sanctions against Tehran. Those, in turn, have led Iran’s Revolutionary Guards to threaten a blockade of the Strait of Hormuz, the world’s most important oil artery through which a fifth of the world’s oil consumption passes. Tensions are running high, with the U.S. Navy standing ready to ensure free navigation through the channel.
High oil prices are wiping out any benefits the U.S. economy might enjoy from Trump’s tax cuts. But while he has lashed out at the cartel and urged it to raise production, he is also pressuring governments to stop Iranian purchases. Such rhetoric may push oil prices higher still. As will any outbreak of hostilities in Hormuz.
???Top Zacks #1 Rank (STRONG BUY) Stocks—
Glencore (GLNCY - Free Report) : This is a $62B market cap mining stock. Oil and natural resource stocks like this are popping up in the top Zacks Rank these days. At $8.65 a share, this one may be cheap too. The long-term Zacks VGM score of A is attractive.
Microchip Technology (MCHP - Free Report) : This is a $22B semiconductor (analog and mixed) company. Where do the chip companies go with the U.S.-China trade war on? This is one stock to check in on with respect to that.
Molina Healthcare (MOH - Free Report) : This is a $6B market cap HMO stock, with a $100 share price. I think the large Medical Services niche is worth investing in, while the worries ramp up on the global economy. The long-term Zacks VGM score is A.
Key Global Macro--
There is not much in the way of data catalysts coming out this week.
I would pay most attention to the central bank policymaker speeches. On Tuesday, the central banks of Poland and Canada hand down monetary policy decisions.
On Monday, Brazil’s inflation rate could be heading in the wrong direction. The prior +5.2% y/y reading may be upped to +8.08%. Add that to the woes of this economy.
Mexico’s inflation rate is also heading higher, but not as dramatically. +4.54% y/y could get to +4.66% y/y.
On Tuesday, Argentina’s repo rate should be steady at 40%. I wish that were good news here.
The U.S. NFIB for small business optimism index comes out. It has been high at 107.8.
South Korea’s unemployment rate is 4.0%. We get a new reading.
On Wednesday, Poland’s central bank should keep its base rate at 1.5%.
The Bank of Canada also sets in policy rate. It has been 1.25%.
On Thursday, Germany’s HICP consumer inflation rate comes out. It should stay at 2.1% y/y. This is good for European Central Bank monetary policy.
In comparison, the French HICP looks a bit hot at +2.4% y/y.
The CPI in India may go from 4.87% y/y to 5.15% y/y.
U.S. initial claims should stay low after last week’s 231K.
On Friday, Japan’s GDP growth rate comes out. It looks to be -0.6% last quarter. In comparison, Singapore’s quarterly growth rate was +1.7% q/q.
Iceland’s unemployment rate is rock bottom at 2.2%. Remember the financial crisis started here before 2008.