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Focus on Q3 Earnings Season: Global Week Ahead

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This is what Zacks Research Director Sheraz Mian had to say about the Q3 earnings season:

"The big banks got us off to a flying start in this Q3 earnings season.

"But we will get a true sense of how good or otherwise the corporate profitability picture is after seeing the coming week’s reporting docket.

"It goes beyond the Finance sector and includes Q3 reports ranging from:

 


"In total, this week will bring results from more than 200 companies, including 73 S&P 500 members.

"This week’s lineup of results will give us fresh insights on the most important issue weighing on the earnings picture at present, namely:

  • - Inflationary trends and
  • - Developments on the logistics/supply-chain front


"The banks aren’t as directly exposed to these issues as P&G and Tesla are. That said, some of the bank leaders see these issues as transitory, and expect them to be worked out over time.

"Including all the results that came out through Friday, October 15th, we now have Q3 results from 41 S&P 500 members, or 8.2% of the index’s total membership.

"Total earnings (or aggregate net income) for these 41 companies:

  • - Are up +40.4% from the same period last year
  • - On +13.4% higher revenues,
  • - 85.4% are beating EPS estimates and
  • - 70.7% are beating revenue estimates."


In the Global Week Ahead, these are Reuters’ five world market themes, reordered for equity traders.

(1) First FAANG Stock Reports This Week

Netflix kicks off third quarter reporting on Thursday for the 'FAANG' group of big U.S. tech and growth companies of Facebook, Apple, Amazon, Netflix and Google-parent Alphabet.

The video streaming company said “Squid Game” has become its biggest series launch ever, while last month "The Crown" won the best drama series Emmy award. Netflix also bought video game creator Night School Studio in a push to diversify.

Netflix's stock price has climbed some +16% in 2021, broadly in line with the S&P 500 and in the middle compared to the other FAANG stocks.

Other companies due to report results next week include Tesla, Johnson & Johnson and Intel.

(2) What Will Happen to Xmas Gifts This Year?

A year after coronavirus lockdowns dampened festive spirits, world leaders will be hoping supply disruption won't be the Grinch who stole Christmas.

It may be more than two months away, but panic buying of turkeys and festive goodies has begun amid supply chain chaos.

White House officials warn Americans may face higher prices and empty shelves this Christmas. The busy ports of Los Angeles and Long Beach are expanding operations to unload an estimated 500,000 containers waiting on cargo ships offshore.

Britain has urged consumers to buy normally after containers carrying toys and electrical goods were diverted from its biggest port because it was full.

Friday's October flash purchasing managers indices (PMI) from Australia, Europe and elsewhere might illustrate supply chain pain. Germany business sentiment is already suffering.

(3) Where Does China Go from Here?

From an Evergrande-induced property market crisis to power shortages halting production lines supplying Apple and Tesla, the world's no. 2 economy has plenty to worry about.

A good gauge of the fallout comes with Monday's Q3 GDP figures and other keenly-watched data points, from factory production to retail sales.

China's economy grew 4.9%, below economists forecasting 5.2% year-on-year, which was already the weakest reading in a year. Power rationing, persistent supply bottlenecks and soaring commodity prices, all as consumption languished amid sporadic COVID-19 flare-ups.

The real estate sector, a key growth driver, is reeling from rising defaults, with sales tumbling and construction slowing. Still, few expect the central bank to ride to the rescue, for fear of fomenting bubbles in debt and property prices.

(4) Traders Will Look for Signs of Rising Inflation, via Europe’s Earnings

Markets will look for signs that production bottlenecks, supply chain strains, labour shortages and surging energy prices are starting to undermine future profits when Europe's earnings kick off.

With rate hikes in the works to fend off inflation stickiness, financial and energy sectors are set to thrive as rising yields dent the appeal of so-called growth stocks.

Early reporters of Q3 earnings season — from luxury giant LVMH, tech SAP and steelmaker Outokumpou — have so far left no bitter after-taste. Now it is the turn of blue chips such as ASML Holding, Unilever, Barclays and ABB.

Earnings are seen jumping +46.7% year-on-year for pan-European STOXX 600 index constituents, though the gap between positive and negative revisions has been shrinking, vindicating the narrative Europe is cruising past peak growth.

(5) Emerging Market Central Banks Offer Policy Decisions

Central banking is rarely dull in emerging markets, but Turkey outstrips most others for excitement.

A fresh batch of policy maker will meet on Thursday after President Tayyip Erdogan instigated another reshuffle, clearing the way for more rate cuts in the face of stubbornly high inflation, and sending the lira to fresh record lows.

But central banks elsewhere are busy ramping up rates. Hungary is expected to nudge up its benchmark on Tuesday to tackle a rise in inflation, which prompted sharp rate rises elsewhere in central Europe.

Russia's central bank will likely follow on Friday, as policy makers have come out in droves warning of rising price pressures and unanchored inflation expectations.

Zacks #1 Rank (STRONG BUY) Stocks

These are the biggest Zacks #1 Rank stocks (by market cap) at the moment:

(1) Tesla (TSLA - Free Report) : This is an $843 a share stock now, making for an incredible $810B market cap. I see a Zacks Value score of F, a Zacks Growth score of A, and a Zacks Momentum score of B.

(2) Berkshire Hathaway (BRK.B - Free Report) : This is s $284 stock now, making for a $636B market cap. I see a Zacks Value score of D, a Zacks Growth score of F, and a Zacks Momentum score of D.

(3) Walmart (WMT - Free Report) : This is a $140 stock now, making for a $390B market cap. I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of D.

Key Global Macro

China’s macro prints are likely to main events. There is a big swath out on Monday.

On Monday, Mainland China’s Q3 GDP should be up +0.5% q/q. China’s retail sales should be up +3.3% y/y. Those are both weak macro numbers for this country.

U.S. capacity utilization should be 76.5% in September, similar to the 76.4% reading in August.

On Tuesday, we get Australia’s RBA meeting minutes.

U.S. building permits should be 1.68M in September, after 1.728M in August.

U.S. starts should be 1.62M in September, after 1.615M in August. Both U.S. housing prints look strong.

On Wednesday, we get a People’s Bank of China (PBoC) rate decision. 3.85% is their policy loan rate, at the moment.

The Eurozone’s CPI for September should be +3.4% y/y.

On Thursday, U.S. initial jobless claims come out. Last week, we saw a 293K number — the first below 300K since the start of the pandemic.

U.S. existing home sales should be 6.0M, up from 5.88 the month prior. Again, quite strong.

On Friday, the U.S. Markit manufacturing PMI for October comes out. I see a 60.7 print for last month.

The Eurozone manufacturing PMI comes out too. I see a 58.6 for last month.

Conclusion

I will state the blindingly obvious to close:

Keep the closest watch out for Big Tech’s Q3 earnings reports in the coming weeks.

The Netflix report coming out this week is the quietest of the bunch.

Warm Regards,

John Blank