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Gear Up for Q2 Earnings Season

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In the Global Week Ahead, stock traders will focus upon a raft of early second quarter earnings reports.

Results and outlooks will come from a number of financial firms in the USA, as usual. Goldman Sachs and Morgan Stanley are two big names to watch for.

But we shall also see some big tech names reporting Q2 results, such as Netflix and Microsoft.

I started with five Reuters updated world market themes. These are likely to dominate the thinking of investors and traders in the Global Week Ahead.

I ranked five headlines in order of importance for equities.

(1) The U.S. gets into a full-fledged Q2 season.

The U.S. enters second quarter earnings season in full-fledged fashion.

Sixty-one firms listed on the S&P 500 release earnings over the week. Twenty-seven of those will be financials.

 

  • Key financial names will include BlackRock, BofA, Goldman Sachs, Morgan Stanley, Capital One and State Street
  • Non-financial names will include the likes of Netflix, eBay, Kinder Morgan and Microsoft
     

Meanwhile, Europe’s Q2 earnings season begins.

Europe's second-quarter corporate earnings season begins in earnest, with analysts predicting robust average growth of +8.1% year-on-year.

The figures will be heavily flattered by the energy sector, where profits have been turbo-charged by the near 50% leap in oil prices over the last year.

To show just how good it has been, oil and gas firms are expected to report earnings growth of +72%, according to data from Thomson Reuters I/B/E/S. Stripping that out would see overall European estimates drop to more modest +2.9%.

The +8.1% headline figure is also well below the +20.9% growth expected from U.S. earnings season which is already into its stride. But as in the United States, investors will be watching for any signs that trade war worries have dented confidence, particularly if firms delay capital expenditure plans.

The firms that will set the tone in Europe include:

  • Industrial firms Sandvik and SKF
     
  • Tech firms SAP and ASML
     
  • Miners BHP Billiton and Anglo American, which both report sales figures
     

(2) China’s GDP Growth doesn’t match with ‘Trade War’ rhetoric.

On Monday, the world's second-largest economy grew +6.7% in the last quarter year-on-year — matching expectations.

It looks set to meet the official 2018 growth target of around +6.5%, though the trade row with Washington has sharply increased the risks to the outlook.

Economists suspect the direct impact from the two sets of U.S. tariffs aimed at Beijing -- the $50 billion underway and another set of targeted tariffs on $200 billion of imports -- could drag China's GDP down by 0.3 percentage points in the longer run.

(3) The Fed’s Powell speaks to the Senate.

Fed Chair Jerome Powell will deliver his semiannual monetary policy report to the Senate Banking Committee on Tuesday, July 17th.

Powell's testimony will be closely watched as the Fed tries to navigate towards higher interest rates at a pace that keeps inflation under control but without going so far or fast that it slows the economy.

Already, investors have been raising red flags about the U.S. Treasury yield curve, which is at its flattest in nearly 11 years and at risk of inversion. An inverted yield curve involves short-term interest rates rising above long rates, which is typically a precursor of recession as it reflects tightening monetary policy.

Powell's last response on the yield curve was: "It's true that yield curves have tended to predict recessions if you look back over many cycles," before suggesting that this time was different. Investors will see if he has changed his tune.

(4) The U.S. and Russian Presidents meet on Monday.

U.S. President Donald Trump and Russian President Vladimir Putin hold their first summit in Helsinki on Monday.

Geopolitical analysts expect Putin to urge Trump to soften sanctions imposed over Ukraine, while Trump has said he will press Putin on everything from allegations of meddling in the 2016 U.S. election to the war in Syria.

European leaders will be watching the outcome closely, especially after Trump called Germany a "captive" of Russia at a testy NATO summit in Belgium, due to its plans for a major new gas pipeline.

EU chiefs have their own plans, too. Jean-Claude Juncker and Donald Tusk head to China on Monday for meetings with its leaders where there might be a show of unity against Trump's trade war maneuvers.

(5) Turkey and Argentina talk of their currency problems.

Turkey's new finance minister Berat Albayrak, son-in-law of the country's President Tayyip Erdogan, is expected to travel to Argentina for the G20 finance ministers meeting on Friday.

The trip will be his first international outing since Erdogan gave him the job as one of his first moves when he got his new powers as executive president.

Turkey's lira crashed to a record low after that decision and markets will be watching Albayrak's performance in Buenos Aires closely. Any sign of a slip up would be likely to crank up the pressure on the lira ahead of Turkey's next central bank meeting on July 24.

Top Zacks #1 Rank (STRONG BUY) Stocks—

Berkshire Hathaway (BRK.B - Free Report) :
Yes, this big $191 a share stock is at the top of our #1 list. The Value score is C and the Growth score is D, though. Could this stock’s run be over?

Intel Corp (INTC - Free Report) : Another granddaddy of stocks is on our #1 list this week. The Value score is B and the Growth score is B. This shows you the chips have more room to run.

Chevron Corp. (CVX - Free Report) : Don’t overlook big integrated Oil & Gas firms this earnings season. The Value score is C and the Growth score is B for this major player.

Key Global Macro—

‘Trade War’ rhetoric and realty is the big sub-text here.

On Monday, Mainland China’s GDP growth came out at the usual +6.7%. However, the hidden story is this: twin forces of trade policy risks and internal credit cycle challenges have been influencing China’s economy

On Friday, Canada’s CPI comes out. The central bank governor says they are ‘behind’ inflation. That means rate hikes could be on the way.

On trade, Canada’s central banker, Governor Poloz, is emphasizing this. A NAFTA resolution is as at least as big a (positive) risk — that suddenly wipes away the effects of steel and aluminum tariffs — as any further tariff deterioration (e.g. autos).

On Monday, the proxy GDP for Peru is likely to dip from +7.8% y/y to +5.6% y/y. That will join with the Peruvian unemployment rate rising from 6.6% to 7.0%.

The proxy GDP for Brazil has likely gone from +3.7% y/y to -3.2% y/y. That is most clearly not good news here.

The unemployment rate in Turkey is 9.6%.

China’s GDP growth rate was +6.7% y/y again. It is always the same, regardless of circumstances on the ground.

On Tuesday, the HICP inflation rate in Italy comes out. It has been +1.5% y/y. This is the slow growth struggler in the Euro.

The U.S. capacity utilization rate likely moved from 77.9% down to 78.3%.

On Wednesday, the U.K. CPI should be out. +2.4% y/y was the last reading.

The Eurozone HICP comes out. It has been +1.0% y/y, while the CPI for the Eurozone is +1.9% y/y.

U.S. housing starts and building permits come out. Permits should rise from 1.3M to 1.37M. Starts stay flat, from 1.35M to 1.33M.

Russia’s unemployment rate is 4.7%.

On Thursday, Australia’s unemployment rate comes out. It has been 5.4%.

The Netherland’s unemployment rate is 3.9%. That may be the low in the Euro area right now.

The Hong Kong unemployment rate is 2.8%. There’s no trade stress there right now.

U.S. weekly initial claims look very, very low at 214K. We get a fresh reading.

On Friday, Canada’s CPI comes out. It has been +2.2% y/y. There are calls for +2.4% y/y this time around.


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