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The U.S. Federal Open Market Committee (FOMC) meets September 15th to 16th.
- Just 39% of respondents to a Sept. 4th to 10th Reuters poll expect Fed officials to alter their guidance
- Almost a third of respondents don’t predict a Fed rate change until 2021 or later
- Respondents also saw the U.S. central bank’s updated quarterly projections showing interest rates near zero through 2023
Stock holders: You read that right.
Interest rates near zero through 2023.
There Is No Alternative (TINA) — for two or more years!
Next are Reuters' five world market themes, reordered for equity traders—
(1) The FOMC Publishes and Powell Speaks on Wednesday
The U.S. Federal Reserve meets for the first time since unveiling its landmark shift to a more tolerant stance on inflation.
That move steepened the U.S. Treasury curve, lifting longer-dated borrowing costs and expectations the Fed may have to increase purchases of long-dated bonds to tamp down yields.
The gap between 5- and 30-year U.S. Treasury yields has contracted since hitting three-month highs after Fed chief Jerome Powell flagged the shift on Aug. 27. But 30-year Treasury yields, sensitive to inflation expectations, remain elevated — not great news for the battered economy.
Fed purchases of more than $1.5 trillion of shorter-dated bonds during the pandemic have pinned down front-end borrowing costs. Investors will watch for a shift towards the long end.
(2) The Bank of England (BoE) and Bank of Japan (BoJ) Follow the Fed
The Fed move towards greater inflation tolerance, essentially a pledge to keep policy loose, puts other central banks in a bind. Unless they follow, the dollar’s weakening against their currencies could threaten economic recovery and their inflation targets.
The ECB says euro strength is not yet a concern. But it, along with British and Japanese peers, which meet in the coming days, may eventually be forced down the Fed’s looser-for-longer route.
No policy changes are expected in Japan and Britain. Still, the Bank of England may flag extending its bond-buying to help an economy reeling from COVID-19 and Brexit.
The Bank of Japan (BOJ), meanwhile, must contend with a new premier, likely Yoshihide Suga, who may not hesitate to pressure the central bank over yen strength. Calling for the BOJ to work with the government, Suga said recently he didn’t buy arguments such as negative rates hitting bank profits.
(3) Emerging Market Central Banks Make Moves
Emerging markets have been hot on the heels of advanced peers in cutting interest rates, but inflation pressures driven by weak currencies could force a pause.
Brazil is seen holding rates at 2% on Wednesday. Indonesia also should stand pat, given its debt monetization scheme has knocked the rupiah hard. The rouble’s tumble to four-year lows could induce Russia’s central bank to hold rates at 4.25% on Friday.
Yet South Africa may have little choice but to ease policy further on Thursday, after a data horror show that revealed a record 51% GDP plunge and a huge current account gap.
(4) COVID-19: Still Relevant
COVID-19 cases are rising again in Asian nations that appeared to have successfully controlled the outbreak. Indonesia’s capital, Jakarta, is back in lockdown and its markets have duly crumbled.
But Indonesia is only part of the story. Trade- and tourism-dependent stock markets in Thailand, the Philippines, Singapore and Indonesia have shed 18% to 24% this year and corporate earnings are seen sinking by a third. Australian shares are at 2 1/2-month lows, as Asian growth fears hurt commodities.
India, despite a four-month lockdown, has the world’s second-highest number of coronavirus cases. Not long ago the fastest-growing major economy, it will contract 14.8% this year, Goldman Sachs predicts.
(5) Brexit Troubling the U.K.
If it’s autumn with a year-end deadline and a sterling sell-off, it must be Brexit.
Britain’s internal market bill, a bombshell which the government readily admits contravenes international law, may wreck its EU divorce treaty, scupper chances of a post-Brexit trade agreement and trigger EU legal action.
Britain’s lower house of parliament starts debating the bill on Monday. While Prime Minister Boris Johnson has an 80-seat majority, internal party rumblings over the bill could well test his authority.
Meanwhile, sterling has lost 4% this month and at $1.28, it may not even be pricing the full risk. Clearer signals come from options markets, where positioning has turned markedly bearish.
Top Zacks #1 Rank (STRONG BUY) Stocks
(1) Target Corp. (TGT - Free Report) : This is a $147 retail stock with a market cap of $73.9B. I see a Zacks Value score of B, a Zacks Growth score of A, and a Zacks Momentum score of C.
(2) General Motors (GM - Free Report) : Yes. This U.S. auto maker is on our #1 list. I see a $30 share price and a $43.6B market cap. There is a Zacks Value score of A, a Zacks Growth score of F, and a Zacks Momentum score of D.
(3) Williams Sonoma (WSM - Free Report) : This is a $92 a share stock with a market cap of $7.1B. I see a Zacks Value score of B, a Zacks Growth score of B, and a Zacks Momentum score of A.
Key Global Macro
It’s a week loaded up with monetary policy. I list eight serial U.S. and global central bank decisions.
On Monday, EU industrial production should be down -8.1% y/y. That’s better than the prior -12.3% y/y data. EU industrial production growth should be up +4.1% m/m.
On Tuesday, U.S. industrial production should be up +1.0% m/m. U.S. capacity utilization should get to 71.6%. The prior reading was 70.6%.
On Wednesday, U.S. retail sales should go up +1.0% m/m.
(1) A two-day U.S. Federal Reserve meeting will culminate in the 2 pm ET statement; and Summary of Economic Projections alongside the dot plot; followed by Chair Powell’s press conference a half hour later.
No major Fed policy changes are anticipated; as the FOMC moves toward rolling out the full results of their strategic review, probably toward year-end.
(2) Banco Central do Brazil (BCB) is likely to hold its SELIC rate at 2.0%. If it surprises with a reduction, it is likely to be the last of the cycle barring further shocks.
On Thursday, U.S. housing starts should get to 1.48M and building permits to 1.52M. Those are robust figures.
(3) The Bank of England (BoE) should keep its policy rate at 0.10%. The Bank of England may find itself in the most difficult position of all. It mulls possible future easing steps in a week that could be a lively one -- for additional Brexit developments.
(4) Bank of Japan: Other than forecast tweaks, the BoJ decision should be largely a non-event with no substantive policy changes expected. -0.1% is the policy rate.
(5) South Africa Reserve Bank (SARB): South Africa’s central bank faces a divided consensus. A little over half expect a 25 bps cut.
(6) Bank Indonesia (BI): BI is universally expected to hold its seven-day reverse repo rate at 4.0%. Currency stability is a key consideration for this central bank. Since early June, the rupiah has depreciated by about 7% to the USD. This central bank is likely to be content with observing the full effects of 200 bps of easing since mid-2019, half of which has been delivered this year.
(7) Taiwan (CBCT): Taiwan’s central bank is widely expected to hold again at 1.125% after it unexpectedly held at the prior meeting. The central bank had guided that it had achieved its goal with the cut in March and no further reduction was required in June. Since then, evidence of a nascent global recovery has accumulated.
On Friday, U of Michigan consumer sentiment should get to 75.0 from 74.1.
(8) Central Bank of Russia: A slim minority of forecasters expect the Central Bank of Russia to cut its key rate by another 25 bps to 4.25%.
Conclusion
Keep it simple, equity traders.
It’s all about the money printing. Stay bullish.
To equity investors?
That novel U.S. and global central bank tilt suggests this: Hold your stocks until 2023.
Happy Trading!
Regards,
John Blank
Will you retire a millionaire? One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.” Click to get it free >>
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Near-Zero Rates to 2023: Global Week Ahead
One big event looms in the Global Week Ahead:
The U.S. Federal Open Market Committee (FOMC) meets September 15th to 16th.
Stock holders: You read that right.
Interest rates near zero through 2023.
There Is No Alternative (TINA) — for two or more years!
Next are Reuters' five world market themes, reordered for equity traders—
(1) The FOMC Publishes and Powell Speaks on Wednesday
The U.S. Federal Reserve meets for the first time since unveiling its landmark shift to a more tolerant stance on inflation.
That move steepened the U.S. Treasury curve, lifting longer-dated borrowing costs and expectations the Fed may have to increase purchases of long-dated bonds to tamp down yields.
The gap between 5- and 30-year U.S. Treasury yields has contracted since hitting three-month highs after Fed chief Jerome Powell flagged the shift on Aug. 27. But 30-year Treasury yields, sensitive to inflation expectations, remain elevated — not great news for the battered economy.
Fed purchases of more than $1.5 trillion of shorter-dated bonds during the pandemic have pinned down front-end borrowing costs. Investors will watch for a shift towards the long end.
(2) The Bank of England (BoE) and Bank of Japan (BoJ) Follow the Fed
The Fed move towards greater inflation tolerance, essentially a pledge to keep policy loose, puts other central banks in a bind. Unless they follow, the dollar’s weakening against their currencies could threaten economic recovery and their inflation targets.
The ECB says euro strength is not yet a concern. But it, along with British and Japanese peers, which meet in the coming days, may eventually be forced down the Fed’s looser-for-longer route.
No policy changes are expected in Japan and Britain. Still, the Bank of England may flag extending its bond-buying to help an economy reeling from COVID-19 and Brexit.
The Bank of Japan (BOJ), meanwhile, must contend with a new premier, likely Yoshihide Suga, who may not hesitate to pressure the central bank over yen strength. Calling for the BOJ to work with the government, Suga said recently he didn’t buy arguments such as negative rates hitting bank profits.
(3) Emerging Market Central Banks Make Moves
Emerging markets have been hot on the heels of advanced peers in cutting interest rates, but inflation pressures driven by weak currencies could force a pause.
Brazil is seen holding rates at 2% on Wednesday. Indonesia also should stand pat, given its debt monetization scheme has knocked the rupiah hard. The rouble’s tumble to four-year lows could induce Russia’s central bank to hold rates at 4.25% on Friday.
Yet South Africa may have little choice but to ease policy further on Thursday, after a data horror show that revealed a record 51% GDP plunge and a huge current account gap.
(4) COVID-19: Still Relevant
COVID-19 cases are rising again in Asian nations that appeared to have successfully controlled the outbreak. Indonesia’s capital, Jakarta, is back in lockdown and its markets have duly crumbled.
But Indonesia is only part of the story. Trade- and tourism-dependent stock markets in Thailand, the Philippines, Singapore and Indonesia have shed 18% to 24% this year and corporate earnings are seen sinking by a third. Australian shares are at 2 1/2-month lows, as Asian growth fears hurt commodities.
India, despite a four-month lockdown, has the world’s second-highest number of coronavirus cases. Not long ago the fastest-growing major economy, it will contract 14.8% this year, Goldman Sachs predicts.
(5) Brexit Troubling the U.K.
If it’s autumn with a year-end deadline and a sterling sell-off, it must be Brexit.
Britain’s internal market bill, a bombshell which the government readily admits contravenes international law, may wreck its EU divorce treaty, scupper chances of a post-Brexit trade agreement and trigger EU legal action.
Britain’s lower house of parliament starts debating the bill on Monday. While Prime Minister Boris Johnson has an 80-seat majority, internal party rumblings over the bill could well test his authority.
Meanwhile, sterling has lost 4% this month and at $1.28, it may not even be pricing the full risk. Clearer signals come from options markets, where positioning has turned markedly bearish.
Top Zacks #1 Rank (STRONG BUY) Stocks
(1) Target Corp. (TGT - Free Report) : This is a $147 retail stock with a market cap of $73.9B. I see a Zacks Value score of B, a Zacks Growth score of A, and a Zacks Momentum score of C.
(2) General Motors (GM - Free Report) : Yes. This U.S. auto maker is on our #1 list. I see a $30 share price and a $43.6B market cap. There is a Zacks Value score of A, a Zacks Growth score of F, and a Zacks Momentum score of D.
(3) Williams Sonoma (WSM - Free Report) : This is a $92 a share stock with a market cap of $7.1B. I see a Zacks Value score of B, a Zacks Growth score of B, and a Zacks Momentum score of A.
Key Global Macro
It’s a week loaded up with monetary policy. I list eight serial U.S. and global central bank decisions.
On Monday, EU industrial production should be down -8.1% y/y. That’s better than the prior -12.3% y/y data. EU industrial production growth should be up +4.1% m/m.
On Tuesday, U.S. industrial production should be up +1.0% m/m. U.S. capacity utilization should get to 71.6%. The prior reading was 70.6%.
On Wednesday, U.S. retail sales should go up +1.0% m/m.
(1) A two-day U.S. Federal Reserve meeting will culminate in the 2 pm ET statement; and Summary of Economic Projections alongside the dot plot; followed by Chair Powell’s press conference a half hour later.
No major Fed policy changes are anticipated; as the FOMC moves toward rolling out the full results of their strategic review, probably toward year-end.
(2) Banco Central do Brazil (BCB) is likely to hold its SELIC rate at 2.0%. If it surprises with a reduction, it is likely to be the last of the cycle barring further shocks.
On Thursday, U.S. housing starts should get to 1.48M and building permits to 1.52M. Those are robust figures.
(3) The Bank of England (BoE) should keep its policy rate at 0.10%. The Bank of England may find itself in the most difficult position of all. It mulls possible future easing steps in a week that could be a lively one -- for additional Brexit developments.
(4) Bank of Japan: Other than forecast tweaks, the BoJ decision should be largely a non-event with no substantive policy changes expected. -0.1% is the policy rate.
(5) South Africa Reserve Bank (SARB): South Africa’s central bank faces a divided consensus. A little over half expect a 25 bps cut.
(6) Bank Indonesia (BI): BI is universally expected to hold its seven-day reverse repo rate at 4.0%. Currency stability is a key consideration for this central bank. Since early June, the rupiah has depreciated by about 7% to the USD. This central bank is likely to be content with observing the full effects of 200 bps of easing since mid-2019, half of which has been delivered this year.
(7) Taiwan (CBCT): Taiwan’s central bank is widely expected to hold again at 1.125% after it unexpectedly held at the prior meeting. The central bank had guided that it had achieved its goal with the cut in March and no further reduction was required in June. Since then, evidence of a nascent global recovery has accumulated.
On Friday, U of Michigan consumer sentiment should get to 75.0 from 74.1.
(8) Central Bank of Russia: A slim minority of forecasters expect the Central Bank of Russia to cut its key rate by another 25 bps to 4.25%.
Conclusion
Keep it simple, equity traders.
It’s all about the money printing. Stay bullish.
To equity investors?
That novel U.S. and global central bank tilt suggests this: Hold your stocks until 2023.
Happy Trading!
Regards,
John Blank
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Click to get it free >>