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Will Central Banks Start to Care About Fundamentals?
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U.S. macro data keeps coming in, and it keeps coming in stronger than expected.
Much stronger than expected.
Still, the only thing that matters is NOT whether stock traders (or pundits) take note of strong data.
It is whether the Fed and other major central banks care.
In the Global Week Ahead, we get critical feedback from 3 major Anglo central bank institutions:
Fed Chair Powell speaks on Monday
The Reserve Bank of Australia (RBA) publishes its rate decision on Tuesday
The Bank of England (BoE) kicks out a monetary policy statement on Thursday
Permabear Canadian economist David Rosenberg offered his take last Friday:
“If the Fed ever does taper, risk assets get crushed, the dollar soars, commodities get crunched and any tantrum in Treasuries will be a huge buying opportunity. QE is only there to generate a positive wealth effect.”
To paraphrase, maybe there is authentic hand-wringing to do.
Give David credit for being a one-armed economist. But remind yourself. He doesn’t work for the Bank of Canada (BoC).
After that, Q1 earnings reports remain a key focus.
The week’s schedule is lighter overall.
Nonetheless, there are major company and industry insights to glean.
Here are the Q1 reports that caught my eye:
On Monday, The Mosaic Companies MOS, Chemours CC, Transocean (RIG - Free Report) and Ligand Pharma LGNDare up.
On Tuesday, CVS Health (CVS - Free Report) , Pfizer (PFE - Free Report) , Activision Blizzard and Xilinx are up.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) On Friday, the U.S. Non-farm Payroll Report for April Lands
Next Friday's U.S. monthly jobs report will give a crucial glimpse into the health of the labor market as the country seeks to broaden its economic reopening.
Non-farm payrolls come at the end of a busy week, including factory data and PMIs. Strong readings could give yields and the dollar another lift and test the Fed's resolve after it said it was too early to consider rolling back emergency support.
Payrolls are expected to have added 925,000 jobs in April, according to a Reuters poll, after a 916,000 jump in March — the largest increase since last August.
Recent data showed 2021 U.S. economic growth on track for the strongest performance in nearly four decades.
(2) Copper and Aluminum Prices on Fire
Copper prices broke above the $10,000 a ton watermark for the first time in over a decade, and the relentless rise may not be over. Booming demand has pushed the industrial metal 27% higher year-to-date while de-carbonization plans around the world are another strong catalyst.
But copper is far from being the only hot commodity. Aluminum has risen by more than a fifth this year to three-year peaks while oil has rallied 30%.
How China's economic recovery shapes up will be key for commodities and in turn for emerging markets dependent on resource exports. With inflation expectations and global yields on the rise, it will give markets plenty to chew over.
(3) European Bank Results Due
Another batch of European banks from Intesa Sanpaolo ISP to UniCredit CRDI and from Societe Generale SOGN to Credit Agricole CAGR, report results in the days to come.
Hopefully they will confirm that the continent's lenders have emerged from the doldrums to become the proxy of choice to play the reflation trade through a massive portfolio rotation into undervalued and cyclical stocks.
The earnings season so far has been heartening, with some 65% of reported results exceeding expectations, topping the usual 51% watermark.
European bank shares have risen more than +20% this year outstripping a +10% rise on the broader STOXX 600 index STOXX, thanks also to a rise in bond yields.
Announcements of more dividends and buybacks should be another tailwind, prompting investors to re-engage with the old continent.
(4) Will There Be a Bank of England (BoE) Taper Soon?
Elections, a central bank meeting and a probe into the redecorating of Prime Minister Boris Johnson's official apartment make for a busy week ahead for Britain.
On Thursday, voters head for the ballot box in Scotland. Forecast to win is the ruling Scottish National Party, which wants to call another referendum on leaving the United Kingdom, a plan Johnson vows to block.
Any fallout could shake the pound from its stupor.
English local elections and a by-election will also test whether the popularity of Johnson's Conservative Party has been dented by recent upheavals.
And ahead of the Bank of England's Thursday meeting, markets will brace for a significant step towards reducing the pace of bond purchases as the economy rebounds from its COVID-19-induced slump.
(5) The Golden Week Holiday Happening in China
It's Golden Week holiday in China and that could boost consumption — the hitherto missing component in the country's economic recovery.
Chinese tourists are desperate to travel in what is the first long public holiday since the late 2020 coronavirus resurgence. And with most foreign destinations off limits, domestic airfares have soared and hotels are sold out for the May 1-5 holidays.
May 5th also brings an online shopping festival and a big test for Beijing's new digital currency. Details are scarce, but a few big state banks distributing 'red packets' containing e-yuan for citizens to splurge will be another show of Beijing's lead in the global race to develop a central bank digital currency.
Top Zacks #1 Rank (STRONG BUY) Stocks
Is this an overvalued stock market?
I wanted to share very well-known and widely-owned Zacks #1 Rank stocks — with Zacks Value scores of F.
(1) Apple (AAPL - Free Report) : At a $133 a share price, I see a market cap of $2.24T. There is a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of B.
(2) Alphabet GOOGL: At a $2,430 share price, I see a market cap of $1.64T. There is a Zacks Value score of F, a Zacks Growth score of B and a Zacks Momentum score of B.
(3) Wells Fargo (WFC - Free Report) : At a $46 share price, I see a market cap of $191B. There is a Zacks Value score of F, a Zacks Growth score of F and a Zacks Momentum score of C.
Lesson: Be careful out there. If there is a Fed Taper, these big stock’s share values can go down, more than you might imagine.
Key Global Macro
Friday’ U.S. nonfarm payroll report is the major macro event.
But keep an eye on news from Fed Chair Powell’s speech on Monday, or the BoE or RBA announcing a taper on Tuesday and Thursday, respectively.
On Monday, the Reserve Bank of Australia (RBA) commodity index comes out. I see a +28.3% y/y consensus for April. That speaks for itself.
The Euro Area’s Markit PMI for Manufacturing should be 63.3 in April.
The U.S. Markit PMI for Manufacturing should be 60.6.
The U.S. ISM PMI for Manufacturing (more widely followed) should be 65 for April.
Fed Chair Powell gives a speech. Expect him to stick to a script.
On Tuesday, the U.K. Markit PMI for Manufacturing should be 60.7 for April.
We get the RBA Monetary Policy Statement down in Australia.
On Wednesday, the Euro Area’s PMI for Services should be 50.3 for April.
U.S. ADP private payrolls should be up +808K in April.
On Thursday, we get a Bank of England (BoE) Monetary Policy Report and a Policy Rate decision. Their 0.1% policy rate should remain intact. Any taper discussion is a bigger deal.
On Friday, U.S. nonfarm payrolls for April look to rise +950K. The household unemployment rate should be 5.7%.
Conclusion
Last Wednesday, April 28th, Zacks’ Research Director Sheraz Mian summed up the Q1 earnings season for us.
Here is what is worth knowing:
(A) Total earnings for the 201 S&P 500 companies that reported Q1 results were up +49.8% on +7.2% higher revenues.
84.6% are beating EPS estimates and 76.6% are beating revenue estimates.
Outsized earnings growth is largely due to very strong numbers from the Finance sector.
(B) For the 64.1% of the Finance sector’s market cap that reported Q1 results, total earnings and revenues were up +149.0% and +8.3%, respectively.
88.2% are beating EPS estimates and 72.5% are beating top-line estimates.
A combination of easy comparisons and unusually strong capital markets business drove the Finance group’s strong results.
(C) Excluding the Finance sector’s strong growth, Q1 earnings growth for the remainder of the companies that reported results would be up +23.0% on +7.0% higher revenues.
This is still the strongest growth for this cohort of companies in recent quarters.
(D) For the Tech sector, we have Q1 results from 47.6% of the sector’s total market capitalization in the S&P 500.
Total earnings for these Tech companies were up +39.3% from the same period last year on +13.7% higher revenues.
100% of Tech companies are beating EPS estimates and 96% are beating revenue estimates.
Impressive, eh?
Regards,
John Blank
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Will Central Banks Start to Care About Fundamentals?
U.S. macro data keeps coming in, and it keeps coming in stronger than expected.
Much stronger than expected.
Still, the only thing that matters is NOT whether stock traders (or pundits) take note of strong data.
It is whether the Fed and other major central banks care.
In the Global Week Ahead, we get critical feedback from 3 major Anglo central bank institutions:
Permabear Canadian economist David Rosenberg offered his take last Friday:
“If the Fed ever does taper, risk assets get crushed, the dollar soars, commodities get crunched and any tantrum in Treasuries will be a huge buying opportunity. QE is only there to generate a positive wealth effect.”
To paraphrase, maybe there is authentic hand-wringing to do.
Give David credit for being a one-armed economist. But remind yourself. He doesn’t work for the Bank of Canada (BoC).
After that, Q1 earnings reports remain a key focus.
The week’s schedule is lighter overall.
Nonetheless, there are major company and industry insights to glean.
Here are the Q1 reports that caught my eye:
On Monday, The Mosaic Companies MOS, Chemours CC, Transocean (RIG - Free Report) and Ligand Pharma LGND are up.
On Tuesday, CVS Health (CVS - Free Report) , Pfizer (PFE - Free Report) , Activision Blizzard and Xilinx are up.
On Wednesday, General Motors (GM - Free Report) , PayPal PYPL, Twilio TWLO, Uber UBER, Qorvo QRVO, Horizon Pharma HZNP and Etsy ETSY are up.
On Thursday, Moderna (MRNA - Free Report) , Roku ROKU, Square SQ, Dropbox DBX and Tripadvisor TRIP are up.
On Friday, Nikola NKLA, Enbridge (ENB - Free Report) , Cigna (CI - Free Report) , Ventas (VTR - Free Report) and Lear LEA are up.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) On Friday, the U.S. Non-farm Payroll Report for April Lands
Next Friday's U.S. monthly jobs report will give a crucial glimpse into the health of the labor market as the country seeks to broaden its economic reopening.
Non-farm payrolls come at the end of a busy week, including factory data and PMIs. Strong readings could give yields and the dollar another lift and test the Fed's resolve after it said it was too early to consider rolling back emergency support.
Payrolls are expected to have added 925,000 jobs in April, according to a Reuters poll, after a 916,000 jump in March — the largest increase since last August.
Recent data showed 2021 U.S. economic growth on track for the strongest performance in nearly four decades.
(2) Copper and Aluminum Prices on Fire
Copper prices broke above the $10,000 a ton watermark for the first time in over a decade, and the relentless rise may not be over. Booming demand has pushed the industrial metal 27% higher year-to-date while de-carbonization plans around the world are another strong catalyst.
But copper is far from being the only hot commodity. Aluminum has risen by more than a fifth this year to three-year peaks while oil has rallied 30%.
How China's economic recovery shapes up will be key for commodities and in turn for emerging markets dependent on resource exports. With inflation expectations and global yields on the rise, it will give markets plenty to chew over.
(3) European Bank Results Due
Another batch of European banks from Intesa Sanpaolo ISP to UniCredit CRDI and from Societe Generale SOGN to Credit Agricole CAGR, report results in the days to come.
Hopefully they will confirm that the continent's lenders have emerged from the doldrums to become the proxy of choice to play the reflation trade through a massive portfolio rotation into undervalued and cyclical stocks.
The earnings season so far has been heartening, with some 65% of reported results exceeding expectations, topping the usual 51% watermark.
European bank shares have risen more than +20% this year outstripping a +10% rise on the broader STOXX 600 index STOXX, thanks also to a rise in bond yields.
Announcements of more dividends and buybacks should be another tailwind, prompting investors to re-engage with the old continent.
(4) Will There Be a Bank of England (BoE) Taper Soon?
Elections, a central bank meeting and a probe into the redecorating of Prime Minister Boris Johnson's official apartment make for a busy week ahead for Britain.
On Thursday, voters head for the ballot box in Scotland. Forecast to win is the ruling Scottish National Party, which wants to call another referendum on leaving the United Kingdom, a plan Johnson vows to block.
Any fallout could shake the pound from its stupor.
English local elections and a by-election will also test whether the popularity of Johnson's Conservative Party has been dented by recent upheavals.
And ahead of the Bank of England's Thursday meeting, markets will brace for a significant step towards reducing the pace of bond purchases as the economy rebounds from its COVID-19-induced slump.
(5) The Golden Week Holiday Happening in China
It's Golden Week holiday in China and that could boost consumption — the hitherto missing component in the country's economic recovery.
Chinese tourists are desperate to travel in what is the first long public holiday since the late 2020 coronavirus resurgence. And with most foreign destinations off limits, domestic airfares have soared and hotels are sold out for the May 1-5 holidays.
May 5th also brings an online shopping festival and a big test for Beijing's new digital currency. Details are scarce, but a few big state banks distributing 'red packets' containing e-yuan for citizens to splurge will be another show of Beijing's lead in the global race to develop a central bank digital currency.
Top Zacks #1 Rank (STRONG BUY) Stocks
Is this an overvalued stock market?
I wanted to share very well-known and widely-owned Zacks #1 Rank stocks — with Zacks Value scores of F.
(1) Apple (AAPL - Free Report) : At a $133 a share price, I see a market cap of $2.24T. There is a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of B.
(2) Alphabet GOOGL: At a $2,430 share price, I see a market cap of $1.64T. There is a Zacks Value score of F, a Zacks Growth score of B and a Zacks Momentum score of B.
(3) Wells Fargo (WFC - Free Report) : At a $46 share price, I see a market cap of $191B. There is a Zacks Value score of F, a Zacks Growth score of F and a Zacks Momentum score of C.
Lesson: Be careful out there. If there is a Fed Taper, these big stock’s share values can go down, more than you might imagine.
Key Global Macro
Friday’ U.S. nonfarm payroll report is the major macro event.
But keep an eye on news from Fed Chair Powell’s speech on Monday, or the BoE or RBA announcing a taper on Tuesday and Thursday, respectively.
On Monday, the Reserve Bank of Australia (RBA) commodity index comes out. I see a +28.3% y/y consensus for April. That speaks for itself.
The Euro Area’s Markit PMI for Manufacturing should be 63.3 in April.
The U.S. Markit PMI for Manufacturing should be 60.6.
The U.S. ISM PMI for Manufacturing (more widely followed) should be 65 for April.
Fed Chair Powell gives a speech. Expect him to stick to a script.
On Tuesday, the U.K. Markit PMI for Manufacturing should be 60.7 for April.
We get the RBA Monetary Policy Statement down in Australia.
On Wednesday, the Euro Area’s PMI for Services should be 50.3 for April.
U.S. ADP private payrolls should be up +808K in April.
On Thursday, we get a Bank of England (BoE) Monetary Policy Report and a Policy Rate decision. Their 0.1% policy rate should remain intact. Any taper discussion is a bigger deal.
On Friday, U.S. nonfarm payrolls for April look to rise +950K. The household unemployment rate should be 5.7%.
Conclusion
Last Wednesday, April 28th, Zacks’ Research Director Sheraz Mian summed up the Q1 earnings season for us.
Here is what is worth knowing:
(A) Total earnings for the 201 S&P 500 companies that reported Q1 results were up +49.8% on +7.2% higher revenues.
84.6% are beating EPS estimates and 76.6% are beating revenue estimates.
Outsized earnings growth is largely due to very strong numbers from the Finance sector.
(B) For the 64.1% of the Finance sector’s market cap that reported Q1 results, total earnings and revenues were up +149.0% and +8.3%, respectively.
88.2% are beating EPS estimates and 72.5% are beating top-line estimates.
A combination of easy comparisons and unusually strong capital markets business drove the Finance group’s strong results.
(C) Excluding the Finance sector’s strong growth, Q1 earnings growth for the remainder of the companies that reported results would be up +23.0% on +7.0% higher revenues.
This is still the strongest growth for this cohort of companies in recent quarters.
(D) For the Tech sector, we have Q1 results from 47.6% of the sector’s total market capitalization in the S&P 500.
Total earnings for these Tech companies were up +39.3% from the same period last year on +13.7% higher revenues.
100% of Tech companies are beating EPS estimates and 96% are beating revenue estimates.
Impressive, eh?
Regards,
John Blank