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The Fed already stated restrictions will end “for most firms” after June 30th.
In addition, Vice Chair Quarles said June 1st the stress tests showcase a “very resilient” banking system. This portends a low risk of any disappointment.
Individual banks that fail the stress test?
They remain subject to restrictions through Sept 30th.
If they fail again, at that time, even tighter distribution limitations will be imposed.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) The Long Commodity Trade Is a Crowded One
Commodity and energy markets have been running red hot, fueled by a heady mix of post-pandemic economic recovery, ample global liquidity and speculative buying.
There's little sign of a let up — or is there?
The world's biggest oil traders predict crude prices will stay above $70 a barrel, and — in a sharp reversal — don't discount a return to $100.
China announced plans to release industrial metals from its national reserves to curb commodity prices and fight inflationary pressures in what would be the first such move in a decade by the world's top metals consumer.
In a sign that the road ahead might not be quite so smooth, asset managers identified being long commodities as the "most crowded" trade in a recent BofA survey — a status that often precedes an unwinding as markets fear a bubble bursting.
(2) On Wednesday, Purchasing Manager Indexes (PMIs) for the USA, Australia, and U.K.
The United States, Australia, Britain and the euro area will kick off global June flash purchasing managers' index (PMI) readings.
The forward-looking economic indicator should confirm a solid outlook for manufacturing, but also divergences opening up.
A swift roll-out of COVID-19 vaccines, economies reopening from lockdowns and hefty stimulus mean PMIs in major economies should remain comfortably above the 50-mark dividing expansion from contraction. The May Eurozone composite PMI hit its highest level since February 2018.
In contrast, India and Brazil have found it hard to contain the coronavirus; Thailand is grappling with its third and worst wave. This could weigh on business activity in emerging markets again, adding to pressure on wealthy nations to help vaccinate the world and close disparities.
(3) Also on Wednesday, U.S. New Home Sales Numbers
New home sales and mortgage application numbers on Wednesday provide a view into U.S. housing — a standout in the post COVID-19 recovery that has shown some weakness lately.
U.S. homebuilding rebounded less than expected in May as the high price of lumber and shortages of other materials hindered builders' ability to take advantage of an acute shortfall.
The focus on lumber prices is a window into inflationary pressures just as the Federal Reserve projects a faster timetable for rate rises and mulls how to end crisis-era bond-buying.
The PHLX housing index of homebuilders and other housing-related stocks has retreated recently but remains one of this year's outperformers.
(4) On Thursday, the Bank of England Meets
The Bank of England meets on Thursday, and sterling bulls are hoping chief economist Andy Haldane's last meeting will provide another boost for the pound.
Haldane has warned of inflationary pressure that might force the BoE to turn off its monetary stimulus taps. Indeed, May inflation zipped above its 2% target for the first time in two years.
Analysts expect no changes to policy after the BoE last month said it would slightly slow the weekly pace of its bond purchases. Britain's decision to delay the full reopening of its economy by a month may be seen as a reason for caution.
Some don't rule out a discussion around tapering, however, with other central banks starting to consider exiting emergency stimulus. Money markets price in more than 9 bps of BoE rate hikes by May 2022 — doubling from the start of the week.
(5) The Tokyo Olympics Saga Continues
It's not just the Bank of Japan on the sidelines of a global debate about when to exit ultra-easy settings. A polarized and emotional country is watching as preparations for the Tokyo Olympics, due to start in a month, heat up.
The coming days should see some easing of emergency lockdown measures for Tokyo and a few other districts, an acceleration of Japan's slow vaccination drive and details of the numbers of spectators that will be allowed into stadiums.
Polls indicate that most Japanese remain wary of the Games even as Prime Minister Yoshihide Suga, battling sagging ratings and a corporate scandal, stakes his reputation on them.
Japan's summer blues may help explain why the yen is languishing near one-year lows around 111-per-dollar.
Top Zacks #1 Rank Stocks
I noted three Zacks A-rated automakers on our #1 list.
General Motors (GM - Free Report) : This is a $59 stock with a market cap of $85.2B. I see a Zacks Value score of A, a Zacks Growth score of B, and a Zacks Momentum score of A.
Stellantis N.V. (STLA - Free Report) : This is a $20 stock with a market cap of $50B. I see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of A.
CNH Industrial N.V. (CNHI - Free Report) : This is a $16 stock with a market cap of $22B. I see a Zacks Value score of B, a Zacks Growth score of B, and Zacks Momentum score of C.
For a reference, Tesla (TSLA - Free Report) currently has a market cap of $600B. These three major large cap auto firms sum to $157B.
Is Tesla really 12 major auto firms in one?
Key Global Macro
Five central banks will weigh in with policy decisions in the Global Week Ahead.
The People’s Bank of China is widely expected to keep its Loan Prime Rates unchanged at the start of the week (Sunday before U.S. markets open).
The BoE (Thursday), Banxico (Thursday) and Fed speakers are the most important acts to follow closely.
Post-FOMC comments from individual members will be watched for possibly further clues. How many members wish to discuss tapering now and timelines?
Fed Chair Powell delivers testimony before the Select Subcommittee on the Coronavirus Crisis of the U.S. House of Representatives on Tuesday at 2pm ET. His topic will be the Fed’s response to the pandemic.
Central banks in the Philippines (Thursday) and Thailand (Friday) are not expected to alter policy.
On Monday, The Chicago Fed National Activity Index comes out for May.
The Fed’s Williams gives a speech.
On Tuesday, U.S. existing home sales for May should be 5.7M, down from 5.85M in April. Does that connote a top in sales? We shall see.
On Wednesday, the U.S. Markit manufacturing PMI should be 61.5 for June.
The Euro area Markit manufacturing PMI should be 62.1.
The ECB’s LaGarde gives a speech. So too does of BoJ’s Kuroda.
On Thursday, Germany’s IFO Business Climate index should be 100.4, Current Assessment should be 97.8, Expectations should be 103.5.
The Bank of England (BoE) announces a rate decision.
U.S. initial jobless claims should be down to 380K this week, down from last week’s surprise 412K.
On Friday, U.S. core Personal Consumption Expenditures (PCE) price index for May should be +3.5% y/y. This is what the Fed watches, in terms of a core consumer inflation rate.
Conclusion
Lately, the 10-yr U.S. Treasury’s rate decline surprised many traders. That surprise decline also took down major U.S. bank stocks.
Thursday’s stress tests may provide a new upside bank share price catalyst.
We shall see.
The end of June is typically a very soft period for stocks. Keep that in mind too.
Regards,
John Blank
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Will Fed Stress Tests Rally Bank Stocks? Global Week Ahead
In the Global Week Ahead, the Fed releases the results of its annual Bank stress tests on Thursday at 4:30 pm ET.
How do these matter?
The Fed announced this, on March 25th: Banks that pass this stress test will have restrictions on dividends and share buybacks lifted after June 30th.
So, Thursday could see strong moves in major Bank stocks, like JPMorgan (JPM - Free Report) , Wells Fargo (WFC - Free Report) and Citigroup (C - Free Report) .
The Fed already stated restrictions will end “for most firms” after June 30th.
In addition, Vice Chair Quarles said June 1st the stress tests showcase a “very resilient” banking system. This portends a low risk of any disappointment.
Individual banks that fail the stress test?
They remain subject to restrictions through Sept 30th.
If they fail again, at that time, even tighter distribution limitations will be imposed.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) The Long Commodity Trade Is a Crowded One
Commodity and energy markets have been running red hot, fueled by a heady mix of post-pandemic economic recovery, ample global liquidity and speculative buying.
There's little sign of a let up — or is there?
The world's biggest oil traders predict crude prices will stay above $70 a barrel, and — in a sharp reversal — don't discount a return to $100.
China announced plans to release industrial metals from its national reserves to curb commodity prices and fight inflationary pressures in what would be the first such move in a decade by the world's top metals consumer.
In a sign that the road ahead might not be quite so smooth, asset managers identified being long commodities as the "most crowded" trade in a recent BofA survey — a status that often precedes an unwinding as markets fear a bubble bursting.
(2) On Wednesday, Purchasing Manager Indexes (PMIs) for the USA, Australia, and U.K.
The United States, Australia, Britain and the euro area will kick off global June flash purchasing managers' index (PMI) readings.
The forward-looking economic indicator should confirm a solid outlook for manufacturing, but also divergences opening up.
A swift roll-out of COVID-19 vaccines, economies reopening from lockdowns and hefty stimulus mean PMIs in major economies should remain comfortably above the 50-mark dividing expansion from contraction. The May Eurozone composite PMI hit its highest level since February 2018.
In contrast, India and Brazil have found it hard to contain the coronavirus; Thailand is grappling with its third and worst wave. This could weigh on business activity in emerging markets again, adding to pressure on wealthy nations to help vaccinate the world and close disparities.
(3) Also on Wednesday, U.S. New Home Sales Numbers
New home sales and mortgage application numbers on Wednesday provide a view into U.S. housing — a standout in the post COVID-19 recovery that has shown some weakness lately.
U.S. homebuilding rebounded less than expected in May as the high price of lumber and shortages of other materials hindered builders' ability to take advantage of an acute shortfall.
The focus on lumber prices is a window into inflationary pressures just as the Federal Reserve projects a faster timetable for rate rises and mulls how to end crisis-era bond-buying.
The PHLX housing index of homebuilders and other housing-related stocks has retreated recently but remains one of this year's outperformers.
(4) On Thursday, the Bank of England Meets
The Bank of England meets on Thursday, and sterling bulls are hoping chief economist Andy Haldane's last meeting will provide another boost for the pound.
Haldane has warned of inflationary pressure that might force the BoE to turn off its monetary stimulus taps. Indeed, May inflation zipped above its 2% target for the first time in two years.
Analysts expect no changes to policy after the BoE last month said it would slightly slow the weekly pace of its bond purchases. Britain's decision to delay the full reopening of its economy by a month may be seen as a reason for caution.
Some don't rule out a discussion around tapering, however, with other central banks starting to consider exiting emergency stimulus. Money markets price in more than 9 bps of BoE rate hikes by May 2022 — doubling from the start of the week.
(5) The Tokyo Olympics Saga Continues
It's not just the Bank of Japan on the sidelines of a global debate about when to exit ultra-easy settings. A polarized and emotional country is watching as preparations for the Tokyo Olympics, due to start in a month, heat up.
The coming days should see some easing of emergency lockdown measures for Tokyo and a few other districts, an acceleration of Japan's slow vaccination drive and details of the numbers of spectators that will be allowed into stadiums.
Polls indicate that most Japanese remain wary of the Games even as Prime Minister Yoshihide Suga, battling sagging ratings and a corporate scandal, stakes his reputation on them.
Japan's summer blues may help explain why the yen is languishing near one-year lows around 111-per-dollar.
Top Zacks #1 Rank Stocks
I noted three Zacks A-rated automakers on our #1 list.
General Motors (GM - Free Report) : This is a $59 stock with a market cap of $85.2B. I see a Zacks Value score of A, a Zacks Growth score of B, and a Zacks Momentum score of A.
Stellantis N.V. (STLA - Free Report) : This is a $20 stock with a market cap of $50B. I see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of A.
CNH Industrial N.V. (CNHI - Free Report) : This is a $16 stock with a market cap of $22B. I see a Zacks Value score of B, a Zacks Growth score of B, and Zacks Momentum score of C.
For a reference, Tesla (TSLA - Free Report) currently has a market cap of $600B. These three major large cap auto firms sum to $157B.
Is Tesla really 12 major auto firms in one?
Key Global Macro
Five central banks will weigh in with policy decisions in the Global Week Ahead.
The People’s Bank of China is widely expected to keep its Loan Prime Rates unchanged at the start of the week (Sunday before U.S. markets open).
The BoE (Thursday), Banxico (Thursday) and Fed speakers are the most important acts to follow closely.
Post-FOMC comments from individual members will be watched for possibly further clues. How many members wish to discuss tapering now and timelines?
Fed Chair Powell delivers testimony before the Select Subcommittee on the Coronavirus Crisis of the U.S. House of Representatives on Tuesday at 2pm ET. His topic will be the Fed’s response to the pandemic.
Central banks in the Philippines (Thursday) and Thailand (Friday) are not expected to alter policy.
On Monday, The Chicago Fed National Activity Index comes out for May.
The Fed’s Williams gives a speech.
On Tuesday, U.S. existing home sales for May should be 5.7M, down from 5.85M in April. Does that connote a top in sales? We shall see.
On Wednesday, the U.S. Markit manufacturing PMI should be 61.5 for June.
The Euro area Markit manufacturing PMI should be 62.1.
The ECB’s LaGarde gives a speech. So too does of BoJ’s Kuroda.
On Thursday, Germany’s IFO Business Climate index should be 100.4, Current Assessment should be 97.8, Expectations should be 103.5.
The Bank of England (BoE) announces a rate decision.
U.S. initial jobless claims should be down to 380K this week, down from last week’s surprise 412K.
On Friday, U.S. core Personal Consumption Expenditures (PCE) price index for May should be +3.5% y/y. This is what the Fed watches, in terms of a core consumer inflation rate.
Conclusion
Lately, the 10-yr U.S. Treasury’s rate decline surprised many traders. That surprise decline also took down major U.S. bank stocks.
Thursday’s stress tests may provide a new upside bank share price catalyst.
We shall see.
The end of June is typically a very soft period for stocks. Keep that in mind too.
Regards,
John Blank