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In the Global Week Ahead, we get the latest June U.S. nonfarm payroll report. This is out on Friday.
Massive stimulus payments in 2020 and 2021 have been inputted into a variety of global macro models.
Those Fed and private macro models generated some very bullish fundamental outlooks on GDP growth.
In turn, the model’s super-strong GDP growth outlook has propelled the projections on the U.S. household unemployment rate.
Lately, though, the actual jobs data has been soft.
Consensus thinks +600K jobs will be added in June. This estimate is now in line with last 3 months. The U.S. added +559K in May, +278K in April, and +785K in March.
Earlier this year, consensus had 1 million jobs coming back each month, due to the “hands are tied” use of these macro models.
The U.S. unemployment rate should be 5.7% in June.
The latest FOMC Economic Projections put out on June 16th, thinks we get to a 4.5% household unemployment rate by the end of the year.
Good luck with that.
This trading week marks the official end of the first half of 2021. We have 6 months to watch that unemployment rate go down from 5.8% to 4.5%. That means -0.2% each month.
The Friday BLS Employment Situation Summary from last month showed the U.S. household unemployment rate went in the wrong direction. It went up +0.1%.
Finally, the weekly U.S. unemployment claims data is still quite elevated.
Next, Reuters’ five world market themes, reordered for equity traders.
(1) First Half of 2021 Officially Over This Week
Investors might be sad to see H1 end after what has been a very happy six months for many major asset classes.
Oil's +45% leap is its best first half in 12 years, world stocks are on course for their second best H1 of the century so far and though the FAANGs have been subdued by their stellar standards, industrial metals are red hot and staples like corn and soybeans are up nearly +40%.
The second half looks harder to call.
More virulent COVID strains keep pandemic experts nervy, China's powerhouse economy looks to be slowing, the commodity and food price surge drives up inflation.
That makes it harder for major economies to justify more stimulus, while a number of emerging markets are hiking rates as a precaution.
(2) On Friday, June U.S. Nonfarm Payroll Report Lands
Friday's U.S. employment report will allow investors to gauge whether a powerful U.S. recovery could push the Federal Reserve to start unwinding ultra-easy monetary policies sooner than expected.
An unexpectedly hawkish Fed shifting its first post-pandemic rate hike into 2023 took markets by surprise, briefly denting stocks — before they returned to record highs thanks to soothing words from Chair Jerome Powell.
Inflation alone won't be enough to drive rate hikes, he reassured markets. Adding perky jobs data to the mix could change that picture, markets fear.
Analysts expect the economy to add 600,000 jobs in June — the largest monthly gain in three months — up from a gain of 559,000 jobs in May.
(3) Record IPO Issuance This Year. Now Some IPO Cracks Have Appeared
IPO markets never had it so good — or have they? Record issuance from the United States, Europe and Asia would suggest the money central banks pour into economies is put to good use supporting entrants to world stock markets.
But cracks are appearing. Some mid-cap deals pulled stock market debuts recently: Marex Spectron in London, PHE Holdings in Paris and Primafrio in Madrid.
Bankers blame investor "indigestion" — a buyside becoming picky with so many deals already priced.
But Nordgold aborting its debut might be the first casualty of expected central bank tightening as the hawkish Fed pushed gold 6% lower.
With Wise embarking on its road show and a huge pipeline of IPO candidates lining up for September, the question is if there will be more.
(4) Outlook for China Getting More Bullish
The chorus of China bulls has quietened down a bit, if the thicket of outlook slideshows so far is any guide.
Investment houses are coalescing around a full-year forecast for 8-point-something percent growth. That is huge, but for a few it represents a downward revision for the second half made in response to disappointing data and some gathering headwinds.
Tightening credit conditions and stubbornly sluggish retail sales are a handbrake on domestic consumption. Demand for exported goods is also flagging as the world reopens.
Industrial profit data on Sunday will be the next guide on the economy, while investors keep one eye on the yuan, which looks set to have one of its worst months since mid-2019, recoiling from a long rally that took it to a three-year high.
(5) On Wednesday, ECB Releases June Flash Inflation Number
Major central banks claim to be looking past short-term inflation rises, but a pick up in price pressures is testing their resolve. The U.S. Fed has shifted to a hawkish bias. Now it's the European Central Bank’s (ECB) turn with Wednesday's June flash inflation release.
Eurozone inflation zipped above its near-2% target in May, and ECB chief economist Philip Lane is confident there is no new paradigm — wage growth, after all, remains weak.
Hold on, say others, noting manufacturing input prices rose to the highest in nearly 2-1/2 decades in June — meaning it's beginning to feel like the 1970s, when the inflation beast last stirred.
Top Zacks #1 Rank (STRONG BUY) Stocks
Brookfield Asset Management (BAM - Free Report) : This is a major global Real Estate operations stock. It is interesting to see it on our #1 list. Shares price at $52 each, and the market cap is $78B. I see a Zacks Value score of C, a Zacks Growth score of C and a Zacks Momentum score of F.
Don’t take that momentum score at face value. These share have been on a tear this year. The real question that F Momentum score alludes to: Is it over?
Lennar (LEN - Free Report) : This is a major U.S. single-family homebuilder. I see a $97 share price, making for a $30.4B market cap stock. I see a Zacks Value score of B, a Zacks Growth score of C and a Zacks Momentum score of A.
I see recent weakness in these shares, starting in May. Again, what can we make of that? A pause before the Momentum continues?
Weyerhauser (WY - Free Report) : This is a major U.S. lumber producer. I see a $34 share price, making for a $25.6B market cap stock. I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of B.
Unmistakably, these lumber shares have plummeted since early May, along with the price of lumber. The share price went from $41 to $34 in a few weeks.
There it is. Fresh quantitative facts and comments for any housing playbook.
Key Global Macro
The week will see both the end of the month, the end of a trading week, and the end of the first half of 2021.
The big event is Friday’s nonfarm payroll report. But I see lots of PMIs in play on Thursday, in advance of that.
On Monday, the NY Fed’s Williams will give a speech.
Japan’s unemployment rate rose to 2.8%, a tick higher than the 2.7% expected.
On Tuesday, Spain’s HICP (the consumer inflation rate there) should be +2.4% y/y in June. Ditto Germany’s y/y HICP rate: 2.4%.
On Wednesday, the Euro area HICP hits the tape. +2.0% is the preliminary estimate.
On Thursday, Germany’s Markit manufacturing PMI should be 64 in June.
The Euro Area’s Markit manufacturing PMI should be 62.8 for June.
The Euro Area unemployment rate should be 8.1%.
The U.S. ISM for Manufacturing PMI comes out. I see a 61 estimate for June.
U.S. total vehicle sales for June come out. This has become more relevant, with the used car price inflation, and empty car lots, due to the chip crisis. 17 million has been the run rate.
U.S. weekly jobless claims are still high at 411K. We get a fresh reading.
On Friday, coming at 8:30 am EST from the Bureau of Labor Statistics, U.S. nonfarm payrolls for June should be up +600K.
The U.S. household unemployment rate should get to 5.7% from 5.8%.
Average hourly earnings have been moving up +20% y/y.
Conclusion
When an event — one not seen in a full century of time, like a global COVID pandemic — delivers the macro framework? I think it is wise to remain somewhat skeptical of model-driven results.
Cause-and-effect regression model makers don’t think too much about unique circumstances.
Fear, unusually high savings rates, lots of nuances flowing out of remote working, higher than normal retirements, fewer teenage part-time workers. Etc. etc. etc.
Those factors, and many more, are gumming up the system results.
Happy trading to all!
Regards,
John Blank
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Projections? Meet Reality: Global Week Ahead
In the Global Week Ahead, we get the latest June U.S. nonfarm payroll report. This is out on Friday.
Massive stimulus payments in 2020 and 2021 have been inputted into a variety of global macro models.
Those Fed and private macro models generated some very bullish fundamental outlooks on GDP growth.
In turn, the model’s super-strong GDP growth outlook has propelled the projections on the U.S. household unemployment rate.
Lately, though, the actual jobs data has been soft.
Consensus thinks +600K jobs will be added in June. This estimate is now in line with last 3 months. The U.S. added +559K in May, +278K in April, and +785K in March.
Earlier this year, consensus had 1 million jobs coming back each month, due to the “hands are tied” use of these macro models.
The U.S. unemployment rate should be 5.7% in June.
The latest FOMC Economic Projections put out on June 16th, thinks we get to a 4.5% household unemployment rate by the end of the year.
Good luck with that.
This trading week marks the official end of the first half of 2021. We have 6 months to watch that unemployment rate go down from 5.8% to 4.5%. That means -0.2% each month.
The Friday BLS Employment Situation Summary from last month showed the U.S. household unemployment rate went in the wrong direction. It went up +0.1%.
Finally, the weekly U.S. unemployment claims data is still quite elevated.
Next, Reuters’ five world market themes, reordered for equity traders.
(1) First Half of 2021 Officially Over This Week
Investors might be sad to see H1 end after what has been a very happy six months for many major asset classes.
Oil's +45% leap is its best first half in 12 years, world stocks are on course for their second best H1 of the century so far and though the FAANGs have been subdued by their stellar standards, industrial metals are red hot and staples like corn and soybeans are up nearly +40%.
The second half looks harder to call.
More virulent COVID strains keep pandemic experts nervy, China's powerhouse economy looks to be slowing, the commodity and food price surge drives up inflation.
That makes it harder for major economies to justify more stimulus, while a number of emerging markets are hiking rates as a precaution.
(2) On Friday, June U.S. Nonfarm Payroll Report Lands
Friday's U.S. employment report will allow investors to gauge whether a powerful U.S. recovery could push the Federal Reserve to start unwinding ultra-easy monetary policies sooner than expected.
An unexpectedly hawkish Fed shifting its first post-pandemic rate hike into 2023 took markets by surprise, briefly denting stocks — before they returned to record highs thanks to soothing words from Chair Jerome Powell.
Inflation alone won't be enough to drive rate hikes, he reassured markets. Adding perky jobs data to the mix could change that picture, markets fear.
Analysts expect the economy to add 600,000 jobs in June — the largest monthly gain in three months — up from a gain of 559,000 jobs in May.
(3) Record IPO Issuance This Year. Now Some IPO Cracks Have Appeared
IPO markets never had it so good — or have they? Record issuance from the United States, Europe and Asia would suggest the money central banks pour into economies is put to good use supporting entrants to world stock markets.
But cracks are appearing. Some mid-cap deals pulled stock market debuts recently: Marex Spectron in London, PHE Holdings in Paris and Primafrio in Madrid.
Bankers blame investor "indigestion" — a buyside becoming picky with so many deals already priced.
But Nordgold aborting its debut might be the first casualty of expected central bank tightening as the hawkish Fed pushed gold 6% lower.
With Wise embarking on its road show and a huge pipeline of IPO candidates lining up for September, the question is if there will be more.
(4) Outlook for China Getting More Bullish
The chorus of China bulls has quietened down a bit, if the thicket of outlook slideshows so far is any guide.
Investment houses are coalescing around a full-year forecast for 8-point-something percent growth. That is huge, but for a few it represents a downward revision for the second half made in response to disappointing data and some gathering headwinds.
Tightening credit conditions and stubbornly sluggish retail sales are a handbrake on domestic consumption. Demand for exported goods is also flagging as the world reopens.
Industrial profit data on Sunday will be the next guide on the economy, while investors keep one eye on the yuan, which looks set to have one of its worst months since mid-2019, recoiling from a long rally that took it to a three-year high.
(5) On Wednesday, ECB Releases June Flash Inflation Number
Major central banks claim to be looking past short-term inflation rises, but a pick up in price pressures is testing their resolve. The U.S. Fed has shifted to a hawkish bias. Now it's the European Central Bank’s (ECB) turn with Wednesday's June flash inflation release.
Eurozone inflation zipped above its near-2% target in May, and ECB chief economist Philip Lane is confident there is no new paradigm — wage growth, after all, remains weak.
Hold on, say others, noting manufacturing input prices rose to the highest in nearly 2-1/2 decades in June — meaning it's beginning to feel like the 1970s, when the inflation beast last stirred.
Top Zacks #1 Rank (STRONG BUY) Stocks
Brookfield Asset Management (BAM - Free Report) : This is a major global Real Estate operations stock. It is interesting to see it on our #1 list. Shares price at $52 each, and the market cap is $78B. I see a Zacks Value score of C, a Zacks Growth score of C and a Zacks Momentum score of F.
Don’t take that momentum score at face value. These share have been on a tear this year. The real question that F Momentum score alludes to: Is it over?
Lennar (LEN - Free Report) : This is a major U.S. single-family homebuilder. I see a $97 share price, making for a $30.4B market cap stock. I see a Zacks Value score of B, a Zacks Growth score of C and a Zacks Momentum score of A.
I see recent weakness in these shares, starting in May. Again, what can we make of that? A pause before the Momentum continues?
Weyerhauser (WY - Free Report) : This is a major U.S. lumber producer. I see a $34 share price, making for a $25.6B market cap stock. I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of B.
Unmistakably, these lumber shares have plummeted since early May, along with the price of lumber. The share price went from $41 to $34 in a few weeks.
There it is. Fresh quantitative facts and comments for any housing playbook.
Key Global Macro
The week will see both the end of the month, the end of a trading week, and the end of the first half of 2021.
The big event is Friday’s nonfarm payroll report. But I see lots of PMIs in play on Thursday, in advance of that.
On Monday, the NY Fed’s Williams will give a speech.
Japan’s unemployment rate rose to 2.8%, a tick higher than the 2.7% expected.
On Tuesday, Spain’s HICP (the consumer inflation rate there) should be +2.4% y/y in June. Ditto Germany’s y/y HICP rate: 2.4%.
On Wednesday, the Euro area HICP hits the tape. +2.0% is the preliminary estimate.
On Thursday, Germany’s Markit manufacturing PMI should be 64 in June.
The Euro Area’s Markit manufacturing PMI should be 62.8 for June.
The Euro Area unemployment rate should be 8.1%.
The U.S. ISM for Manufacturing PMI comes out. I see a 61 estimate for June.
U.S. total vehicle sales for June come out. This has become more relevant, with the used car price inflation, and empty car lots, due to the chip crisis. 17 million has been the run rate.
U.S. weekly jobless claims are still high at 411K. We get a fresh reading.
On Friday, coming at 8:30 am EST from the Bureau of Labor Statistics, U.S. nonfarm payrolls for June should be up +600K.
The U.S. household unemployment rate should get to 5.7% from 5.8%.
Average hourly earnings have been moving up +20% y/y.
Conclusion
When an event — one not seen in a full century of time, like a global COVID pandemic — delivers the macro framework? I think it is wise to remain somewhat skeptical of model-driven results.
Cause-and-effect regression model makers don’t think too much about unique circumstances.
Fear, unusually high savings rates, lots of nuances flowing out of remote working, higher than normal retirements, fewer teenage part-time workers. Etc. etc. etc.
Those factors, and many more, are gumming up the system results.
Happy trading to all!
Regards,
John Blank