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In the Global Week Ahead, several sets of U.S. macroeconomic releases inform traders on the health of the U.S. household sector.
Here is how Canada’s Scotiabank FX economists puled it together –
Friday’s U.S. personal income growth data is likely to tank only because the flow of stimulus cheques going out the door waned in April relative to March.
$325B of cheques went out in March due to the American Recovery Act, versus
$61B in April, and
A relatively trivial residual amount during May.
In all, nine rounds of cheques have now been disbursed.
When combined with relatively modest job growth, the result is likely to mean that personal incomes fell by around -13.5% m/m after surging by +21% in March.
Because of the strong gains in the first quarter of this year, that were fed by stimulus cheques in January and March, the first quarter jump in personal incomes will give rise to a second quarter drop that should be looked through.
Where to from here for income growth?
That depends not only upon the speed of a jobs recovery, but also additional policy considerations.
Numerous states are opting out of the extra $300/week of federal unemployment benefits because they fear that high payments may be discouraging labor force re-entry.
They’ve set up an interesting test of that argument:
If reduced benefits truly motivate re-entry, then the impact on income growth may have little effect.
If they don’t, then this is likely to motivate further declines in aggregate personal income ahead of what is otherwise the planned expiration of the added payments by October.
Next are Reuters’ five world market themes, reordered for equity traders.
(1) Sell in May, and Go Away?
Markets saw it coming — they were at record highs well before the first-quarter earnings season saw companies delivering one of the strongest profit jumps on record. The bumper earnings flows were therefore met on markets with a yawn.
Is it the "Sell in May" trade?
With a few days left of the month, the S&P 500 is in the red after three months of gains and Europe's STOXX 600 is barely afloat.
But the second quarter offers reasons to be cheerful, with the S&P 500 earnings seen expanding by almost +62% and European profit growth expected to rise around +93%.
(2) Is the Rise in Consumer Price Inflation Transitory? Or Not?
The dollar is on the ropes, having erased its gains for 2020 versus a basket of currencies. The reversal stems from the Federal Reserve's apparent resolve to keep printing money at the current pace despite signs of an economic and inflation rebound.
Fed officials mostly dismiss higher prices as transitory and stemming from base effects. That view will be tested on May 28 by the latest reading of the Personal Consumption Expenditures (PCE) index.
The core PCE, excluding food and energy, is the Fed’s preferred inflation measure for its 2% flexible average target. It was up 1.8% in the 12 months to March.
If the Fed sticks to its guns even in the face of a blowout PCE print, the dollar could lurch lower still. That should add fuel to the commodity rally and boost equity sentiment.
But watch the crypto market — a repeat of this week's wobbles could bring back the safe-haven bid.
(3) Is the Commodity Price “Super-Cycle” On? Or Not?
Commodity and energy markets have been supercharged this year, recording synchronized price gains not seen in more than a decade.
Oil is near $70 a barrel, the highest in more than two years, and the reopening of economies has lifted industrial metals to record highs. Surging demand has been met with supply bottlenecks and shipping delays.
China, which has driven global metal markets for more than a decade, is now pledging to curb unreasonable price increases for consumers. That might bring relief to commodity importers facing inflation pressures. It remains to be seen if the move also dampens recovery prospects for commodity-reliant developing nations.
(4) Germany’s 10-yr Bund Yield Fast Approaching 0%
Germany's 10-year Bund yield is fast approaching 0%. A big deal? Yes and no.
Germany would actually be the last of the Eurozone sovereigns to see negative 10-year borrowing costs turn positive. It's evidence that the entrenched pessimism about the region's economy is finally fading.
That, alongside the rise in inflation expectations explains why the ECB doesn't appear too worried about the moves. And with stimulus still in place, the scope for a further rise in borrowing costs should be limited.
Still, watch ECB talk in the days ahead.
A sharper, more protracted move that takes Bund yields above 0% could put an end to any talk of slowing emergency bond buys in the near future.
(5) New Zealand’s Virus Elimination Strategy Delivered a Strong Recovery
New Zealand's virus-elimination strategy has delivered an economic recovery way ahead of expectations, meaning it may soon join Norway and Canada in beginning to plan rate rises.
At the February meeting of the Reserve Bank of New Zealand, rate hikes were not on the radar but the one on May 26th comes on the heels of a stimulatory budget, roaring business and inflation indicators and a government directive to consider the housing market while setting policy.
Swaps markets are pricing rate rises from 2022. The bank may not go so far as speaking of those but what's possible is taper talk or a timeline that puts the RBNZ ahead of most of its developed-world peers.
Zacks #1 Rank (STRONG BUY) Stocks
(1) Wells Fargo (WFC - Free Report) : This major banking stock is on our #1 list now. I see a $46 a share price tag and a market cap of $189B. The Zacks Value score is F, the Zacks Growth score is F, and the Zacks Momentum score is D. So, the covering analysts are looking for a forward-looking turn up in the bank’s fundamentals.
(2) VALE (VALE - Free Report) : This is a major Brazilian iron ore miner. The shares are priced at $21 each. The market cap is $108B. I see a Zacks Value score of B, a Zacks Growth score of C, and a Zacks Momentum score of A. All of these scores depend on iron ore prices, and they are starting to flag a bit.
(3) Daimler AG : Yes, the German automaker is on our #1 list now. I see a $91 a share price tag and a market cap of $98B. I also see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of C. The covering analysts are clearly looking for an ‘electrification’ upside, much like Ford here.
Key Global Macro
Three regional central banks (New Zealand, Indonesia, and South Korea) deliver updated policy decisions.
While all 3 expect to leave monetary policy unchanged, idiosyncratic regional differences are worth hearing – with respect to forward-looking risks.
The global macro release calendar has a few gems in it too. But the schedule is generally set for a light week of data risk.
On Monday, the Fed’s Brainard gives a speech. Look for a discussion on the jobs outlook and the CPI outlook. Taper talk would spook the markets, so that won’t happen.
The BoJ’s Kuroda gives a speech.
On Tuesday, the S&P/Case-Shiller Home Price Index (HPI) for March should be up +11.7% y/y. That is a strong annual HPI number.
U.S. New Home Sales for April should be 0.95M, down from 1.02M in March.
The Bank of Indonesia should stay on hold.
On Wednesday, the Reserve Bank of New Zealand provides a rate decision. Expect the 0.25% rate to remain fixed. Recall: the virus is non-existent here. This central bank could be a first-mover on rate hiking.
On Thursday, the Bank of Canada’s (BoC) Lane gives a speech. Canada has a serious Home Price Bubble going on.
U.S. Treasury Secretary Yellen gives a speech.
U.S. Durable Goods Orders should up +0.8% in April.
U.S. annualized GDP for Q1 should be confirmed at 6.5%.
The Bank of Korea is also expected to stay on hold.
On Friday, the U. of Michigan consumer sentiment index should be 82.9 in May, after printing 82.8 in April.
U.S. core Personal Consumption Expenditures (PCE) should be up +0.7% in April, assisting a +3.0% y/y rise.
Conclusion
Friday’s U.S. core Personal Consumption Expenditure (PCE) data is the big macro event this week.
With reference to S&P 500 stock returns treading water — over the last month — stock traders aren’t expecting much from April or May macro data.
A macro data surprise would be a true surprise, in that context.
On top of a share consolidation narrative, there is Bitcoin bubble-popping to factor in.
In light of speculative excesses manifested in Bitcoin prices (still), this may be a global trading week where hot-money financial trading action trumps a sane (and somewhat boring) slate of macro data.
That would be my bet.
Happy trading and investing!
Regards,
John Blank
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In Bitcoin We Trust: Global Week Ahead
In the Global Week Ahead, several sets of U.S. macroeconomic releases inform traders on the health of the U.S. household sector.
Here is how Canada’s Scotiabank FX economists puled it together –
Friday’s U.S. personal income growth data is likely to tank only because the flow of stimulus cheques going out the door waned in April relative to March.
In all, nine rounds of cheques have now been disbursed.
When combined with relatively modest job growth, the result is likely to mean that personal incomes fell by around -13.5% m/m after surging by +21% in March.
Because of the strong gains in the first quarter of this year, that were fed by stimulus cheques in January and March, the first quarter jump in personal incomes will give rise to a second quarter drop that should be looked through.
Where to from here for income growth?
That depends not only upon the speed of a jobs recovery, but also additional policy considerations.
Numerous states are opting out of the extra $300/week of federal unemployment benefits because they fear that high payments may be discouraging labor force re-entry.
They’ve set up an interesting test of that argument:
Next are Reuters’ five world market themes, reordered for equity traders.
(1) Sell in May, and Go Away?
Markets saw it coming — they were at record highs well before the first-quarter earnings season saw companies delivering one of the strongest profit jumps on record. The bumper earnings flows were therefore met on markets with a yawn.
Is it the "Sell in May" trade?
With a few days left of the month, the S&P 500 is in the red after three months of gains and Europe's STOXX 600 is barely afloat.
But the second quarter offers reasons to be cheerful, with the S&P 500 earnings seen expanding by almost +62% and European profit growth expected to rise around +93%.
(2) Is the Rise in Consumer Price Inflation Transitory? Or Not?
The dollar is on the ropes, having erased its gains for 2020 versus a basket of currencies. The reversal stems from the Federal Reserve's apparent resolve to keep printing money at the current pace despite signs of an economic and inflation rebound.
Fed officials mostly dismiss higher prices as transitory and stemming from base effects. That view will be tested on May 28 by the latest reading of the Personal Consumption Expenditures (PCE) index.
The core PCE, excluding food and energy, is the Fed’s preferred inflation measure for its 2% flexible average target. It was up 1.8% in the 12 months to March.
If the Fed sticks to its guns even in the face of a blowout PCE print, the dollar could lurch lower still. That should add fuel to the commodity rally and boost equity sentiment.
But watch the crypto market — a repeat of this week's wobbles could bring back the safe-haven bid.
(3) Is the Commodity Price “Super-Cycle” On? Or Not?
Commodity and energy markets have been supercharged this year, recording synchronized price gains not seen in more than a decade.
Oil is near $70 a barrel, the highest in more than two years, and the reopening of economies has lifted industrial metals to record highs. Surging demand has been met with supply bottlenecks and shipping delays.
China, which has driven global metal markets for more than a decade, is now pledging to curb unreasonable price increases for consumers. That might bring relief to commodity importers facing inflation pressures. It remains to be seen if the move also dampens recovery prospects for commodity-reliant developing nations.
(4) Germany’s 10-yr Bund Yield Fast Approaching 0%
Germany's 10-year Bund yield is fast approaching 0%. A big deal? Yes and no.
Germany would actually be the last of the Eurozone sovereigns to see negative 10-year borrowing costs turn positive. It's evidence that the entrenched pessimism about the region's economy is finally fading.
That, alongside the rise in inflation expectations explains why the ECB doesn't appear too worried about the moves. And with stimulus still in place, the scope for a further rise in borrowing costs should be limited.
Still, watch ECB talk in the days ahead.
A sharper, more protracted move that takes Bund yields above 0% could put an end to any talk of slowing emergency bond buys in the near future.
(5) New Zealand’s Virus Elimination Strategy Delivered a Strong Recovery
New Zealand's virus-elimination strategy has delivered an economic recovery way ahead of expectations, meaning it may soon join Norway and Canada in beginning to plan rate rises.
At the February meeting of the Reserve Bank of New Zealand, rate hikes were not on the radar but the one on May 26th comes on the heels of a stimulatory budget, roaring business and inflation indicators and a government directive to consider the housing market while setting policy.
Swaps markets are pricing rate rises from 2022. The bank may not go so far as speaking of those but what's possible is taper talk or a timeline that puts the RBNZ ahead of most of its developed-world peers.
Zacks #1 Rank (STRONG BUY) Stocks
(1) Wells Fargo (WFC - Free Report) : This major banking stock is on our #1 list now. I see a $46 a share price tag and a market cap of $189B. The Zacks Value score is F, the Zacks Growth score is F, and the Zacks Momentum score is D. So, the covering analysts are looking for a forward-looking turn up in the bank’s fundamentals.
(2) VALE (VALE - Free Report) : This is a major Brazilian iron ore miner. The shares are priced at $21 each. The market cap is $108B. I see a Zacks Value score of B, a Zacks Growth score of C, and a Zacks Momentum score of A. All of these scores depend on iron ore prices, and they are starting to flag a bit.
(3) Daimler AG : Yes, the German automaker is on our #1 list now. I see a $91 a share price tag and a market cap of $98B. I also see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of C. The covering analysts are clearly looking for an ‘electrification’ upside, much like Ford here.
Key Global Macro
Three regional central banks (New Zealand, Indonesia, and South Korea) deliver updated policy decisions.
While all 3 expect to leave monetary policy unchanged, idiosyncratic regional differences are worth hearing – with respect to forward-looking risks.
The global macro release calendar has a few gems in it too. But the schedule is generally set for a light week of data risk.
On Monday, the Fed’s Brainard gives a speech. Look for a discussion on the jobs outlook and the CPI outlook. Taper talk would spook the markets, so that won’t happen.
The BoJ’s Kuroda gives a speech.
On Tuesday, the S&P/Case-Shiller Home Price Index (HPI) for March should be up +11.7% y/y. That is a strong annual HPI number.
U.S. New Home Sales for April should be 0.95M, down from 1.02M in March.
The Bank of Indonesia should stay on hold.
On Wednesday, the Reserve Bank of New Zealand provides a rate decision. Expect the 0.25% rate to remain fixed. Recall: the virus is non-existent here. This central bank could be a first-mover on rate hiking.
On Thursday, the Bank of Canada’s (BoC) Lane gives a speech. Canada has a serious Home Price Bubble going on.
U.S. Treasury Secretary Yellen gives a speech.
U.S. Durable Goods Orders should up +0.8% in April.
U.S. annualized GDP for Q1 should be confirmed at 6.5%.
The Bank of Korea is also expected to stay on hold.
On Friday, the U. of Michigan consumer sentiment index should be 82.9 in May, after printing 82.8 in April.
U.S. core Personal Consumption Expenditures (PCE) should be up +0.7% in April, assisting a +3.0% y/y rise.
Conclusion
Friday’s U.S. core Personal Consumption Expenditure (PCE) data is the big macro event this week.
With reference to S&P 500 stock returns treading water — over the last month — stock traders aren’t expecting much from April or May macro data.
A macro data surprise would be a true surprise, in that context.
On top of a share consolidation narrative, there is Bitcoin bubble-popping to factor in.
In light of speculative excesses manifested in Bitcoin prices (still), this may be a global trading week where hot-money financial trading action trumps a sane (and somewhat boring) slate of macro data.
That would be my bet.
Happy trading and investing!
Regards,
John Blank