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How disruptive will the Omicron COVID variant prove to be for the world economy?
That's a lead question U.S. and Global stock markets grapple with in the Global Week Ahead.
After that major concern, we have another brick placed in a proverbial wall of worry…
The Fed's Jerome Powell no longer reckons "transitory" is the right word to describe surging price pressures. Upcoming U.S. consumer inflation numbers may prove him right.
Hot U.S. core CPI data out on Friday, in turn, would provide an assist to hawks, later on, at the 2-day FOMC meeting held Dec. 14th and 15th.
Elsewhere, Mainland China weighs in with macro growth data of its own, all week long.
Germany moves on from the Angela Merkel era.
Next are Reuters' five world market themes, reordered for equity traders.
(1) Where’s the Santa Claus Rally?
Stock market traders often enjoy a 'Santa rally' in December as investors load up on treats for the new year, but this one doesn't look so promising.
The emergence of Omicron and a Fed now clearly inching to raise U.S. rates are dampening festive spirits.
Wall Street's S&P 500 has notched a positive return in December 74% of the time since 1928 data shows, more than in any other month. But for now, it and MSCI's 50-country world index are both frozen flat.
That just leaves the VIX volatility index — the so-called 'fear gauge' of world markets — doing any rallying.
(2) Fed Chair Powell Says Consumer Price Inflation Not “Transitory”
A hawkish shift from the Federal Reserve and concern over Omicron heightens the focus on Friday's U.S. inflation data.
Fed chief Jerome Powell reckons "transitory" is no longer accurate to describe high inflation and that the Fed could in December debate speeding up its bond buying taper.
Another strong inflation print could bolster expectations of a more aggressive Fed, weighing on markets already spooked by Omicron.
U.S. consumer prices accelerated 6.2% in October — their biggest annual gain in 31 years — and could stay uncomfortably high into 2022 due to snarled supply chains.
The Fed's latest "Beige Book" survey shows firms grappling with rising inflation and scrambling to fill jobs amid labor shortages. No surprise then that the Fed's tone is shifting.
(3) More U.S. Rate Hawks, More Worry About a Strong U.S. Dollar
To paraphrase a former Treasury secretary, the dollar is the U.S. currency but can become the world's problem.
The dollar's 7% year-to-date gain turned 2021 into another 'annus horribilis' for emerging markets -- tightening financial conditions and raising costs for commodity importers.
As U.S. rate-rise bets pull ahead of most developed peers, the dollar's flexed its muscles again. A comparison between U.S. and German "real" — or inflation-adjusted — 10-year yields shows the former's premium at the highest since last March.
Foreign entities with dollar liabilities have started their December greenback rush, boosting the currency's premium in swaps markets. That may continue until year-end.
If the Fed raises rates next year, the dollar may weaken as it often does as a tightening cycle begins. But given the dollar's potential to surprise, bearish forecasts are remarkably few.
(4) Where Does Mainland China Growth Head in 2022?
A conservative economic growth target that pushes President Xi Jinping's 'common prosperity' agenda is what most China watchers expect in 2022 and the coming data dump may not surprise them.
Inflation is benign, affording Beijing space to pursue targeted monetary easing, even as other major economies look to tighten. Exports continue to show strength and could be even stronger if Omicron disrupts supply chains and increases global demand for electronics.
Focus is also turning to key Communist Party meetings in mid-December that set growth and policy targets that won't be released until next year. Policy advisers expect the growth target to be a modest 5%-5.5% — versus the near-8% pace in 2021.
Rolling the dice on the economy is proving easier than on regulation, where more property developer defaults loom, Macau's casinos are under siege and there's little sense of who's next in the firing line.
(5) New German Chancellor in Office
Olaf Scholz officially takes over as German chancellor in days to come, ending Angela Merkel's 16 years in charge of Europe's biggest economy. He steps straight into fire-fighting mode.
Germany is battling soaring COVID infections in a fourth wave, inflation is running at record high levels, Europe faces an energy crunch and a Russian troop build-up near the Ukraine border has triggered alarms in the West.
Scholz, who heads a three-party coalition, will oversee the introduction of tougher COVID-19 fighting measures as the Omicron discovery escalates concerns.
Meanwhile who Scholz nominates as the next Bundesbank President will also be watched closely as the ECB's hawks and doves battle it out. According to one press report, Joachim Nagel, a top BIS official has moved into pole position.
Zacks #1 Rank (STRONG BUY) Stocks
Let’s take a spin around the central Asia-Pacific region, starting in Mainland China, moving on to Japan, and ending in Taiwan.
(1) JD.com (JD - Free Report) : Yes. I know BABA is near $110 a share. That is why it is so interesting to see its major competitor on our #1 list this week. These shares turned up in September, believe it or not.
I see a $78 share price, and a market cap of $113B. I also see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of A.
(2) TDK (TTDKY - Free Report) : Nobody likes Japanese stocks at the moment. This is a Japanese maker of electronic components. When will traders like international stocks again? Go figure.
I see a share price of $40 and a market cap of $15B. I also see a Zacks Value score of A, a Zacks Growth score of D and a Zacks Momentum score of C.
(3) AU Optronics (AUOTY - Free Report) : Au Optronics is a Taiwan-headquarter global manufacturer of large-size thin film transistor liquid crystal display panels, which are currently the most widely used flat panel display technology.
I see a $7.55 share price, and a market cap of $7.1B. I also see a Zacks Value score of A, a Zacks Growth score of B and a Zacks Momentum score of D.
Key Global Macro
Mainland China macro data flows out all week long.
On Monday, Mainland China’s exports should grow +17.2% y/y in NOV. China’s imports should grow +19.5% y/y in NOV too.
We get a fresh Reserve Bank of Australia (RBA) rate decision. 0.1% should stick around.
On Tuesday, the Eurozone Q3 GDP growth rate should be up +3.7% y/y. Decent.
On Wednesday, U.S. JOLTS job openings get updated for OCT. The prior is 10.4M openings.
Mainland China’s PPI for NOV should be up +12.6% y/y. It was up +13.5% y/y in OCT.
On Thursday, China’s YTD Foreign Direct Investment (FDI) should be out thru NOV. +17.8% y/y was the prior YTD growth rate.
On Friday, the U.S. Consumer Price Index (CPI) for NOV, ex-Food & Energy, should be +4.9% y/y.
U of Michigan consumer sentiment for DEC preliminarily? 67. That is low, low, low. Thank that rise in the CPI for that.
Conclusion
I think we are all going to be surprised.
By the sheer level of involvement the world’s medical and science and public health community — has already undertaken on Omicron.
Hold off on setting too firm of assumptions, though, based on what we learn this week. It is new.
We have vaccines. Get a booster shot. That is likely going to work best as a preventive strategy.
Stay safe and sane and sanguine.
Regards,
John Blank
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How Disruptive Will Omicron Be? Global Week Ahead
How disruptive will the Omicron COVID variant prove to be for the world economy?
That's a lead question U.S. and Global stock markets grapple with in the Global Week Ahead.
After that major concern, we have another brick placed in a proverbial wall of worry…
The Fed's Jerome Powell no longer reckons "transitory" is the right word to describe surging price pressures. Upcoming U.S. consumer inflation numbers may prove him right.
Hot U.S. core CPI data out on Friday, in turn, would provide an assist to hawks, later on, at the 2-day FOMC meeting held Dec. 14th and 15th.
Elsewhere, Mainland China weighs in with macro growth data of its own, all week long.
Germany moves on from the Angela Merkel era.
Next are Reuters' five world market themes, reordered for equity traders.
(1) Where’s the Santa Claus Rally?
Stock market traders often enjoy a 'Santa rally' in December as investors load up on treats for the new year, but this one doesn't look so promising.
The emergence of Omicron and a Fed now clearly inching to raise U.S. rates are dampening festive spirits.
Wall Street's S&P 500 has notched a positive return in December 74% of the time since 1928 data shows, more than in any other month. But for now, it and MSCI's 50-country world index are both frozen flat.
That just leaves the VIX volatility index — the so-called 'fear gauge' of world markets — doing any rallying.
(2) Fed Chair Powell Says Consumer Price Inflation Not “Transitory”
A hawkish shift from the Federal Reserve and concern over Omicron heightens the focus on Friday's U.S. inflation data.
Fed chief Jerome Powell reckons "transitory" is no longer accurate to describe high inflation and that the Fed could in December debate speeding up its bond buying taper.
Another strong inflation print could bolster expectations of a more aggressive Fed, weighing on markets already spooked by Omicron.
U.S. consumer prices accelerated 6.2% in October — their biggest annual gain in 31 years — and could stay uncomfortably high into 2022 due to snarled supply chains.
The Fed's latest "Beige Book" survey shows firms grappling with rising inflation and scrambling to fill jobs amid labor shortages. No surprise then that the Fed's tone is shifting.
(3) More U.S. Rate Hawks, More Worry About a Strong U.S. Dollar
To paraphrase a former Treasury secretary, the dollar is the U.S. currency but can become the world's problem.
The dollar's 7% year-to-date gain turned 2021 into another 'annus horribilis' for emerging markets -- tightening financial conditions and raising costs for commodity importers.
As U.S. rate-rise bets pull ahead of most developed peers, the dollar's flexed its muscles again. A comparison between U.S. and German "real" — or inflation-adjusted — 10-year yields shows the former's premium at the highest since last March.
Foreign entities with dollar liabilities have started their December greenback rush, boosting the currency's premium in swaps markets. That may continue until year-end.
If the Fed raises rates next year, the dollar may weaken as it often does as a tightening cycle begins. But given the dollar's potential to surprise, bearish forecasts are remarkably few.
(4) Where Does Mainland China Growth Head in 2022?
A conservative economic growth target that pushes President Xi Jinping's 'common prosperity' agenda is what most China watchers expect in 2022 and the coming data dump may not surprise them.
Inflation is benign, affording Beijing space to pursue targeted monetary easing, even as other major economies look to tighten. Exports continue to show strength and could be even stronger if Omicron disrupts supply chains and increases global demand for electronics.
Focus is also turning to key Communist Party meetings in mid-December that set growth and policy targets that won't be released until next year. Policy advisers expect the growth target to be a modest 5%-5.5% — versus the near-8% pace in 2021.
Rolling the dice on the economy is proving easier than on regulation, where more property developer defaults loom, Macau's casinos are under siege and there's little sense of who's next in the firing line.
(5) New German Chancellor in Office
Olaf Scholz officially takes over as German chancellor in days to come, ending Angela Merkel's 16 years in charge of Europe's biggest economy. He steps straight into fire-fighting mode.
Germany is battling soaring COVID infections in a fourth wave, inflation is running at record high levels, Europe faces an energy crunch and a Russian troop build-up near the Ukraine border has triggered alarms in the West.
Scholz, who heads a three-party coalition, will oversee the introduction of tougher COVID-19 fighting measures as the Omicron discovery escalates concerns.
Meanwhile who Scholz nominates as the next Bundesbank President will also be watched closely as the ECB's hawks and doves battle it out. According to one press report, Joachim Nagel, a top BIS official has moved into pole position.
Zacks #1 Rank (STRONG BUY) Stocks
Let’s take a spin around the central Asia-Pacific region, starting in Mainland China, moving on to Japan, and ending in Taiwan.
(1) JD.com (JD - Free Report) : Yes. I know BABA is near $110 a share. That is why it is so interesting to see its major competitor on our #1 list this week. These shares turned up in September, believe it or not.
I see a $78 share price, and a market cap of $113B. I also see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of A.
(2) TDK (TTDKY - Free Report) : Nobody likes Japanese stocks at the moment. This is a Japanese maker of electronic components. When will traders like international stocks again? Go figure.
I see a share price of $40 and a market cap of $15B. I also see a Zacks Value score of A, a Zacks Growth score of D and a Zacks Momentum score of C.
(3) AU Optronics (AUOTY - Free Report) : Au Optronics is a Taiwan-headquarter global manufacturer of large-size thin film transistor liquid crystal display panels, which are currently the most widely used flat panel display technology.
I see a $7.55 share price, and a market cap of $7.1B. I also see a Zacks Value score of A, a Zacks Growth score of B and a Zacks Momentum score of D.
Key Global Macro
Mainland China macro data flows out all week long.
On Monday, Mainland China’s exports should grow +17.2% y/y in NOV. China’s imports should grow +19.5% y/y in NOV too.
We get a fresh Reserve Bank of Australia (RBA) rate decision. 0.1% should stick around.
On Tuesday, the Eurozone Q3 GDP growth rate should be up +3.7% y/y. Decent.
On Wednesday, U.S. JOLTS job openings get updated for OCT. The prior is 10.4M openings.
Mainland China’s PPI for NOV should be up +12.6% y/y. It was up +13.5% y/y in OCT.
On Thursday, China’s YTD Foreign Direct Investment (FDI) should be out thru NOV. +17.8% y/y was the prior YTD growth rate.
On Friday, the U.S. Consumer Price Index (CPI) for NOV, ex-Food & Energy, should be +4.9% y/y.
U of Michigan consumer sentiment for DEC preliminarily? 67. That is low, low, low. Thank that rise in the CPI for that.
Conclusion
I think we are all going to be surprised.
By the sheer level of involvement the world’s medical and science and public health community — has already undertaken on Omicron.
Hold off on setting too firm of assumptions, though, based on what we learn this week. It is new.
We have vaccines. Get a booster shot. That is likely going to work best as a preventive strategy.
Stay safe and sane and sanguine.
Regards,
John Blank