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Big Bank Reports on Deck: Global Week Ahead

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In the Global Week Ahead, U.S. earnings season kicks off.

24 S&P 500 firms release their Q1 results. There is a typical early focus mostly on Financials.

Big bank reports include: JP Morgan (BMO on Wednesday April 14th), Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, Wells Fargo, BlackRock, BNY Mellon, and State Street.

A sprinkling of non-financial marques includes Delta and PepsiCo.

Next are Reuters’ five world market themes, reordered for equity traders.

(1) U.S. Consumer Price Inflation (CPI) Data Out Tuesday

U.S. consumer prices for March are due out Tuesday and markets are ready to scour the data for signs that massive stimulus spending is spurring inflation. Rising inflation expectations helped ignite a first-quarter selloff in Treasuries that pushed yields to pre-pandemic highs.

A strong reading could spark a fresh jump in yields and be bad news for stocks after the S&P climbed to fresh record highs, especially high-flying growth names.

Fed Chair Jerome Powell said a spending surge as the U.S. economy reopens along with bottlenecks in supply will likely push prices higher this year, but not result in the kind of price rises that would constitute inflation.

Analysts see consumer prices rising by a median +2.4% for March year-on-year, up from +1.7% in February.

(2) Q1 Earnings Season Kicks Off with Major Banks

U.S. corporates — due to kick off reporting season with the major banks — look on track for the biggest quarterly results gain since Q3 2018, when tax cuts under then-President Donald Trump drove a surge in profit growth.

Overall Q1 S&P 500 earnings are expected to have jumped +24.2% from a year earlier, according to IBES data from Refinitiv. The results follow a big rally in sectors including energy and financials — stocks most likely to benefit from the rebound.

A future risk to earnings is the threat of corporate tax rises from 21% currently, as proposed by U.S. President Joe Biden.

A 28% tax rate would take 7.4% off S&P 500 companies’ earnings per share, UBS estimates.

(3) Mainland China Macroeconomic Accounting Data Comes Out

Chinese data on GDP, credit growth, trade, industrial output and retail sales are likely to confirm the narrative of a solidifying economic recovery from pandemic lockdowns.

Economists expect first quarter GDP growth — due out Friday — to rise as much as 20% year-on-year, setting China up for a nearly double-digit 2021 expansion thanks to a resurgence in global manufacturing and a sharp recovery in domestic spending.

But maybe that’s too much good news. Investors are fretting policymakers will pedal back on the easy pandemic monetary conditions, and blue chips logged their worst month in a year in March. Premier Li Keqiang has said Beijing will focus instead on consolidating the recovery.

(4) Euro Area Speeds Up Vaccination Rates

The euro area, still deep in lockdowns to combat COVID-19, has had a dose of good news. More than 10 million people in France have now received a first shot of a vaccine, with a government target for the number reached a week ahead of schedule.

Germany’s COVID vaccination drive too has picked up speed and Italy, which aims to vaccinate at least 80% of its population by the end of September, could soon sign a contract with Moderna for more vaccine doses.

The vaccine race is key to the reopening of economies and news on this front will remain in focus. The forward-looking PMI indicator also gives reason for hope that economies are coping better than expected with new lockdowns. Eurozone business activity bounced back to growth in March — Germany’s ZEW sentiment survey out on Tuesday, may support that picture.

(5) Turkey Amounts to Dictatorship, Welcomes “New” Central Bank Governor

Turkey’s central bank will hold its first meeting under new governor Sahap Kavcioglu. Since last month’s surprise sacking of his predecessor, the lira has plummeted versus the dollar while inflation expectations are rising swiftly.

Policymakers are seen holding interest rates unchanged at 19%, but the expected timeline for a cut has been shortened.

In South America, Sunday elections could confirm a regional leftist turn, giving investors more food for thought.

Ecuador’s presidential runoff follows months of debate over whether socialism or market-friendly policies are needed to restart the economy, with a left-wing economist looking in the lead in most polls.

In Peru, polls indicate no clear winner, with six candidates vying for a shot at the June runoff, making the election one of the most unpredictable in recent memory.

Top Zacks #1 Rank (STRONG BUY) Stocks

With a housing boom underway, let’s look into Building Products and Related Industries.

(1) Weyerhauser (WY - Free Report) : This is a $37 a share Wood Building Products stock, making it to a market cap of $27.5B. I see a Zacks Value Score of D, a Zacks Growth score of C, and a Zacks Momentum score of B.

(2) Martin Marietta Materials (MLM - Free Report) : This is a $341 a share Concrete and Aggregates Building Products stock, making it to a market cap of $21B. I see a Zacks Value score of F, a Zacks Growth score of C, and a Zacks Momentum score of F.

(3) Makita (MKTAY - Free Report) : This is a $44 a share Handheld Tool company, making it to a market cap of $11.7B. I see a Zacks Value score of D, a Zacks Growth score of D, and a Zacks Momentum score of D.

My observations? The Zacks long-term Value scores are very poor, across the board. The Zacks Growth scores are mediocre.

Will Momentum trading stock traders ever care about valuations? Daily share trading volumes have been very weak of late.

Key Global Macro

In the Global Week Ahead, the important macro data dump likely happens on Tuesday, with the U.S. Consumer Price Inflation data for March.

The 10-yr U.S. risk-free Treasury rate is effectively pricing in expected ex-Food & Energy Consumer Price Inflation.  Mechanically, stock allocation machines take in the rate change as a key input.

That is why this data dump matters so much. To stock traders who worry about a catalyst, reversing the high-market beta momentum trades they have put on.

On Monday, Euro Area retail sales for FEB come out. I see a -5.7% y/y number is expected. The m/m number is for +1.0%.

Mainland China’s Foreign Direct Investment data comes out. Look for 38% y/y expansion in YTD y/y March terms. That sounds quite strong.

On Tuesday, the U.S. Consumer Price Indices come out for March. Look for a +2.5% y/y broad CPI number. The ex-Food & Energy CPI looks to be +1.6% y/y.

On Wednesday, Europe’s CPI the Harmonized Index of Consumer Prices (HICP) comes out. I see a +1.2% y/y number is expected. That is notably weaker than the U.S. ex-Food & Energy CPI number.

The Fed’s Beige Book comes out, detailing regional conditions in the USA.

On Thursday, U.S. retail sales for March come out; ex-Autos should be up +4.8% m/m.

U.S. initial weekly jobless claims still look high at 700K.

On Friday, Mainland China’s GDP growth rate for Q1 looks to be up +18.8% y/y. Be wary of that. The COVID base effect is in play. The q/q rise for Q1 looks to be +1.5%.

The Eurozone Finance Ministers meet.

U.S. Housing starts and Building Permits come out for March. Expect 1.613M starts and 1.75M permits for March. That data is quite strong.

Conclusion

How did Scotiabank’s global economists put together suspect U.S. EPS reporting circumstances, giving us an external view of an internal situation?

Like this--

If the usual pattern holds, then the Q1 earnings season might face further upside.

Earnings beats have been common -- ever since Sarbanes-Oxley legislation. After which, analysts turned more conservative. For fear of being pilloried, ostracized, or held directly liable.

The vast majority of quarterly EPS seasons have witnessed strong beat ratios. This is defined as the share of reporting companies beating analysts’ expectations.

The S&P 500’s current price to expected future earnings one-year forward stands at 23.7 times. Two-years forward sits at 20.6 times.

Forward earnings encapsulate an attempt at measuring effects of vaccines. Coupled with unprecedented fiscal and monetary policy stimulus.

That doesn’t strike one as particularly rich, if analysts are anywhere close to the mark with their earnings calls. Even without what have become fairly routine upsides -- to their expectations.

In the simplest of terms, a major company earnings “beat” is NOT what it used to be.

That’s why I put the U.S. CPI data ahead — of U.S. Q1 EPS reports — in force-ranking the catalysts inside this Global Week Ahead.

Regards,

John Blank


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