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(A) The Fed is certain to introduce new communication tools on Wednesday and will probably introduce forward guidance for its asset purchase program.
What it might do with the scale and scope of its asset purchase program is more uncertain.
The statement arrives at 2 pm ET on Wednesday followed by Chair Powell’s usual press conference starting a half hour later.
(B) The Bank of England (BoE) is not expected to alter its asset purchase target of £875B or their 0.1% Bank Rate.
But obviously, the state of Brexit negotiations and the outcome into the New Year, and how markets take it, may be impactful to its assessments.
Next are Reuters’ five world market themes, re-ordered for equity traders.
(1) The U.S. Fed Meeting Ends Wednesday
November’s U.S. inflation uptick has increased speculation the Federal Reserve will on Wednesday announce plans to up purchases of longer-dated Treasuries to keep yields contained.
Ten- and 30-year U.S. borrowing costs are up by roughly 60 and 100 bps, respectively, from record lows hit in March. Two-year yields are just 4 bps off record lows. That’s unsurprising -- the majority of the Fed’s $2 trillion purchases since March have been of short-dated debt.
That makes it likely the Fed will re-weight debt purchases towards the longer end. But will the move come this month?
Thirty-year yields are particularly sensitive to inflation expectations. They edged down even after data showing U.S. inflation rose 0.2% last month. That, investors say, is a sign of growing expectations that Fed intervention is coming.
(2) Brexit Could Happen. Then the Bank of England (BoE) Meets Thursday
When the Bank of England announced a 150 billion pound increase in stimulus last month, it probably didn’t anticipate acting again soon.
If a Brexit trade deal had been signed by now, as expected, that would have been sufficient to shield the economy. But it hasn’t quite gone that way. Another Brexit deadline looms on Sunday and banks are quietly raising the odds of no-deal.
No agreement by Thursday’s meeting would mean the BOE will need to focus on increased risks to the economy and possibly open the doors for more stimulus and sub-zero interest rates.
Until recently, the 0.10% Bank rate was not expected to change until 2022. But Brexit deadlock means money markets now price a 65% probability of a 10 basis point (bps) cut by March 2021, doubling from a month ago.
(3) Tesla (TSLA) Joins S&P 500 December 21st
Tesla joins the S&P 500 on Dec. 21st and investors anticipate an epic trade of over $50 billion in Tesla shares in the minutes before Friday’s close, as index funds adjust holdings to match the benchmark’s rejig.
The electric carmaker’s shares have surged 50% since November, when its index debut was announced. It is the world’s most valuable auto company, despite output that is a fraction of rivals Toyota, Volkswagen and General Motors.
Active funds, many of which have avoided Tesla, must now decide how much to own, if any. Portfolio managers have been calling JPMorgan analyst Ryan Brinkman for advice.
His view? Tesla is “dramatically” overvalued.
Indeed, Tesla shares trade at 165 times 12-month forward earnings, Refinitiv data shows. Daimler and Toyota are at 10 and 16 times respectively.
(4) Container Shipping Rates Are Way Up
Factories cranking out mountains of appliances, toys, protective equipment and other items in demand overseas are fueling China’s world-beating economic recovery and export boom.
One side-effect is a shortage of shipping containers.
That’s sent cargo costs up 85%-150% since June, and with container shipping accounting for 60% of goods movements worldwide, the risks to global trade disruption are clear.
Chinese manufacturers, who supply 96% of all container output, are working extra shifts to meet demand. Yet that’s sent steel and timber prices soaring. Far away in Britain, carmaker Honda had to halt production due to container port delays.
(5) The Outgoing U.S. Administration Will Be Going After China
The outgoing White House administration isn’t quite done with China, having in recent weeks blacklisted Chinese firms with alleged military ties and prompting S&P and FTSE Russell to cull their shares from indexes.
Congress has laid the groundwork for forcing auditors on to Chinese companies with U.S. listings -- likely to net names such as Alibaba and Tencent. The State department may soon call out banks that work with officials behind Beijing’s Hong Kong crackdown.
Punishments could range from restrictions on dealing with Americans to severance from the global dollar system.
China has not yet responded, but investors are on edge.
Top Zacks #1 Rank (STRONG BUY) Stocks
On our Zacks #1 list, I found two medical instrument and product companies, and one Internet Xmas play this week.
(1) Hologic (HOLX - Free Report) : This is a Medical Instrument company, catering to the healthcare needs of women. With shares pricing at $74 each, the market cap is $19.1B. I see a Zacks Value score of C, a Zacks Growth score of B and a Zacks Momentum score of A.
(2) Packaging Corp. of America (PKG - Free Report) : This is a Corrugated Paper play for the Internet Xmas shipping season. The shares price at $136 each, making for a $12.9B market cap company. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of B.
(3) Quidel (QDEL - Free Report) : This is a Medical Products company. Point-of-care, rapid diagnostic tests. I see a hefty $202 share price, making for a $8.5B market cap. I see a Zacks Value score of D, a Zacks Growth score of A and a Zacks Momentum score of B.
Any of these should work, if the broad U.S. indexes head still higher. But be careful. This is an overbought share market.
Key Global Macro—
On Monday, Japanese industrial production could be down -3.2% y/y in October.
Euro Area industrial production could be down -4.5% y/y in October.
On Tuesday, Chinese industrial production should be out for October. The last reading was a +6.9% y/y reading.
Now, that trifecta of readings shows you something, doesn’t it?
As for U.S. industrial production? It should be up +0.3% y/y in October. The capacity utilization rate should be 73%. Not great on either metric.
On Wednesday, the Euro Area preliminary Markit PMI for manufacturing should be 53 in December. But the PMI for Services should be 40.9.
U.S. MBA mortgage applications come out.
The preliminary U.S. Markit manufacturing PMI should be 55.9 for December.
The Fed’s rate decision, and the latest U.S. Fed macro projections will hit the tape.
On Thursday, the Australian unemployment rate should be 7.0%.
The Bank of England (BoE) meeting renders its monetary policy decisions.
On Friday, the U.S. Baker Hughes rig count for the last week lands. This remains low at 258 rigs.
The Bank of Japan (BoJ), the last of the week’s big monetary policy hitters, announces its decisions. Here, basically zero rates are likely to stay unchanged. So, no need to highlight.
Conclusion
Mid-December.
Stock markets are on the upswing. For several weeks now.
How did stock index technician Adam Mancini tie it together for us?
He writes,
After a fake breakout of the key 3,680 S&P 500 index price level, next week will show us whether this Santa rally has another leg. Or if a correction has begun:
- Basically, the S&P 500 index bulls want to see basing above 3,600 to 3,620, to setup a new continuation pattern to the upside.
- It should be clear early in the week if this is happening.
- If we lose 3,600 it would likely confirm we are entering into a deeper correction.
To start the week, we are likely to see more upside in the S&P 500. I see futures trading near the 3,680 mark.
If the week goes poorly for bulls, holding onto the 3,600 level on the S&P 500 strikes me as critical too.
Good luck trading this week.
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.”
Image: Bigstock
Two Big Monetary Meetings: Global Week Ahead
Two big monetary policy meeting matter this week.
According to Scotiabank—
(A) The Fed is certain to introduce new communication tools on Wednesday and will probably introduce forward guidance for its asset purchase program.
What it might do with the scale and scope of its asset purchase program is more uncertain.
The statement arrives at 2 pm ET on Wednesday followed by Chair Powell’s usual press conference starting a half hour later.
(B) The Bank of England (BoE) is not expected to alter its asset purchase target of £875B or their 0.1% Bank Rate.
But obviously, the state of Brexit negotiations and the outcome into the New Year, and how markets take it, may be impactful to its assessments.
Next are Reuters’ five world market themes, re-ordered for equity traders.
(1) The U.S. Fed Meeting Ends Wednesday
November’s U.S. inflation uptick has increased speculation the Federal Reserve will on Wednesday announce plans to up purchases of longer-dated Treasuries to keep yields contained.
Ten- and 30-year U.S. borrowing costs are up by roughly 60 and 100 bps, respectively, from record lows hit in March. Two-year yields are just 4 bps off record lows. That’s unsurprising -- the majority of the Fed’s $2 trillion purchases since March have been of short-dated debt.
That makes it likely the Fed will re-weight debt purchases towards the longer end. But will the move come this month?
Thirty-year yields are particularly sensitive to inflation expectations. They edged down even after data showing U.S. inflation rose 0.2% last month. That, investors say, is a sign of growing expectations that Fed intervention is coming.
(2) Brexit Could Happen. Then the Bank of England (BoE) Meets Thursday
When the Bank of England announced a 150 billion pound increase in stimulus last month, it probably didn’t anticipate acting again soon.
If a Brexit trade deal had been signed by now, as expected, that would have been sufficient to shield the economy. But it hasn’t quite gone that way. Another Brexit deadline looms on Sunday and banks are quietly raising the odds of no-deal.
No agreement by Thursday’s meeting would mean the BOE will need to focus on increased risks to the economy and possibly open the doors for more stimulus and sub-zero interest rates.
Until recently, the 0.10% Bank rate was not expected to change until 2022. But Brexit deadlock means money markets now price a 65% probability of a 10 basis point (bps) cut by March 2021, doubling from a month ago.
(3) Tesla (TSLA) Joins S&P 500 December 21st
Tesla joins the S&P 500 on Dec. 21st and investors anticipate an epic trade of over $50 billion in Tesla shares in the minutes before Friday’s close, as index funds adjust holdings to match the benchmark’s rejig.
The electric carmaker’s shares have surged 50% since November, when its index debut was announced. It is the world’s most valuable auto company, despite output that is a fraction of rivals Toyota, Volkswagen and General Motors.
Active funds, many of which have avoided Tesla, must now decide how much to own, if any. Portfolio managers have been calling JPMorgan analyst Ryan Brinkman for advice.
His view? Tesla is “dramatically” overvalued.
Indeed, Tesla shares trade at 165 times 12-month forward earnings, Refinitiv data shows. Daimler and Toyota are at 10 and 16 times respectively.
(4) Container Shipping Rates Are Way Up
Factories cranking out mountains of appliances, toys, protective equipment and other items in demand overseas are fueling China’s world-beating economic recovery and export boom.
One side-effect is a shortage of shipping containers.
That’s sent cargo costs up 85%-150% since June, and with container shipping accounting for 60% of goods movements worldwide, the risks to global trade disruption are clear.
Chinese manufacturers, who supply 96% of all container output, are working extra shifts to meet demand. Yet that’s sent steel and timber prices soaring. Far away in Britain, carmaker Honda had to halt production due to container port delays.
(5) The Outgoing U.S. Administration Will Be Going After China
The outgoing White House administration isn’t quite done with China, having in recent weeks blacklisted Chinese firms with alleged military ties and prompting S&P and FTSE Russell to cull their shares from indexes.
Congress has laid the groundwork for forcing auditors on to Chinese companies with U.S. listings -- likely to net names such as Alibaba and Tencent. The State department may soon call out banks that work with officials behind Beijing’s Hong Kong crackdown.
Punishments could range from restrictions on dealing with Americans to severance from the global dollar system.
China has not yet responded, but investors are on edge.
Top Zacks #1 Rank (STRONG BUY) Stocks
On our Zacks #1 list, I found two medical instrument and product companies, and one Internet Xmas play this week.
(1) Hologic (HOLX - Free Report) : This is a Medical Instrument company, catering to the healthcare needs of women. With shares pricing at $74 each, the market cap is $19.1B. I see a Zacks Value score of C, a Zacks Growth score of B and a Zacks Momentum score of A.
(2) Packaging Corp. of America (PKG - Free Report) : This is a Corrugated Paper play for the Internet Xmas shipping season. The shares price at $136 each, making for a $12.9B market cap company. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of B.
(3) Quidel (QDEL - Free Report) : This is a Medical Products company. Point-of-care, rapid diagnostic tests. I see a hefty $202 share price, making for a $8.5B market cap. I see a Zacks Value score of D, a Zacks Growth score of A and a Zacks Momentum score of B.
Any of these should work, if the broad U.S. indexes head still higher. But be careful. This is an overbought share market.
Key Global Macro—
On Monday, Japanese industrial production could be down -3.2% y/y in October.
Euro Area industrial production could be down -4.5% y/y in October.
On Tuesday, Chinese industrial production should be out for October. The last reading was a +6.9% y/y reading.
Now, that trifecta of readings shows you something, doesn’t it?
As for U.S. industrial production? It should be up +0.3% y/y in October. The capacity utilization rate should be 73%. Not great on either metric.
On Wednesday, the Euro Area preliminary Markit PMI for manufacturing should be 53 in December. But the PMI for Services should be 40.9.
U.S. MBA mortgage applications come out.
The preliminary U.S. Markit manufacturing PMI should be 55.9 for December.
The Fed’s rate decision, and the latest U.S. Fed macro projections will hit the tape.
On Thursday, the Australian unemployment rate should be 7.0%.
The Bank of England (BoE) meeting renders its monetary policy decisions.
On Friday, the U.S. Baker Hughes rig count for the last week lands. This remains low at 258 rigs.
The Bank of Japan (BoJ), the last of the week’s big monetary policy hitters, announces its decisions. Here, basically zero rates are likely to stay unchanged. So, no need to highlight.
Conclusion
Mid-December.
Stock markets are on the upswing. For several weeks now.
How did stock index technician Adam Mancini tie it together for us?
He writes,
After a fake breakout of the key 3,680 S&P 500 index price level, next week will show us whether this Santa rally has another leg. Or if a correction has begun:
To start the week, we are likely to see more upside in the S&P 500. I see futures trading near the 3,680 mark.
If the week goes poorly for bulls, holding onto the 3,600 level on the S&P 500 strikes me as critical too.
Good luck trading this week.
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 >>