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A Marquee Week with Central Decisions: Global Week Ahead

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In the Global Week Ahead, it is a marquee week for major (coordinated?) central bank decisions in the United States, the Eurozone and the U.K.

But don’t forget about lesser-followed central bank calls in Japan, Mexico and Russia.

The China Evergrande Group saga moved to the next stage after ratings agency Fitch called a default. Now what?

Then: Is SPAC-mania back from the dead? Risk-on?

Finally, does Turkey's central bank deliver still more cuts? A debacle unfolds there.

Next are Reuters’ five world market themes, reordered for equity traders—

(1) Fed Meeting Concludes Wednesday: Speed up or Hold the Taper?

How much Federal Reserve hawkishness are markets willing to tolerate? We may get the answer on Wednesday when the Fed concludes its last meeting of 2021.

Its largesse has helped the S&P500 more than double from its March 2020 lows, but lately stocks have oscillated between Omicron woes and taper expectations, with Fed Chair Jerome Powell flagging policymakers would discuss a faster taper of bond purchases.

Some have speculated that a degree of Fed hawkishness may already be baked into equities, which have risen in recent days.

Signs the Fed is growing more worried about inflation – even after suggesting it was time to retire “transitory” from its description of U.S. price rises – could roil markets. So could suggestions of a more aggressive rate hike path in the "dot plot" projection of rates.

(2) Bank of England (BoE), European Central Bank (ECB) Policy Decisions Thursday

Across the pond, the Bank of England and European Central Bank unveil policy decisions within 45 minutes of each other on Thursday. Both are potentially market-moving.

Uncertainty fueled by the Omicron COVID-19 variant has dented expectations for a near-term BoE rate hike, but markets are not entirely ruling out a 15 bps move either.

The ECB should confirm its 1.85 trillion-euro PEPP pandemic stimulus scheme will end in March. Its hawks and doves now go to battle over how much support to leave in place once PEPP ends -Omicron and sticky inflation complicate the debate.

Meanwhile, the Bank of Japan concludes a two-day meeting on Friday. A decision to phase out some pandemic-stimulus programs when they expire in March could be made. Then again, they may be extended due to Omicron.

(3) What Happens (in China AND Globally) After the Evergrande Group Default?

Embattled developer China Evergrande Group seems to have reached the end of the line.

A missed $82.5 million coupon payment is set to be the domino that triggers cross-defaults worth around $19 billion on Evergrande international debt, along with the more worrisome risk of contagion for the broader economy and markets from its $300 billion in total liabilities.

A Fitch downgrade to "restricted default" knocked commodities including crude on renewed worries about China's economy.

Authorities assure that the fallout is manageable, but they have a lot on their plates right now:

  • - The central bank cut bank reserve ratios to stimulate growth and then raised FX reserve requirements to stem a yuan rally
  • - The government also faces a growing diplomatic boycott of the Beijing Winter Olympics, potentially drawing battle lines with the West


(4) SPACs Have Rebounded. Lately. For Now.

Special purpose acquisition companies (SPACs) have made a comeback thanks to a flurry of deals, some poor trading and Donald Trump.

Choppy markets saw the SPACs boom grind to a halt in recent months, but now it's all go again after Omicron-driven expectations for more central bank largesse pushed volumes for blank-cheque vehicles above $144 billion for the year so far.

A number of SPACs listed in New York, Amsterdam and London while "de-SPACs" have seen news website Buzzfeed, British pharma firm BenevolentAI and bitcoin miner Griid Infrastructure agreeing mergers.

Donald Trump's social media venture is raising $1 billion to augment its October SPAC merger.

There have been reminders of risks with EV maker Lucid subpoenaed by the SEC and Singapore ride-hailing firm Grab tumbling 20% on its debut. For now, SPAC-mania continues.

(5) Turkey’s Finance System in Trouble — Big Trouble

Thursday is another day of reckoning for Turkey's central bank. Policymakers must decide whether to follow President Tayyip Erdogan’s lead and double down to cut rates in the face of more than 21% inflation or whether a weak lira – down 36% this quarter – has stymied the push lower.

The week will also confirm Turkey as an outlier among hawkish emerging central banks struggling with rising inflation and the prospect of the Fed kicking off its tapering and hiking cycle. Hungary is expected to hike 30 basis points on Tuesday, Russia could follow with a 50 basis point hike on Friday.

Across Latin America, a region that has seen sizable rate hikes over the past year, expectations are high that Chile on Tuesday, Mexico on Thursday and Colombia on Friday will all raise benchmark rates.

Top Zacks #1 Rank (STRONG BUY) Stocks

Let’s look into the largest Semi stocks on our Zacks #1 Rank list now.

(1) Infineon Technologies (IFNNY - Free Report) : I see a $45 share price and a market cap of $59.1B. There is a Zacks Value score of F, a Zacks Growth score of F and a Zacks Momentum score of B.

(2) Xilinx : I see a $215 share price and a market cap of $53.2B. There is a Zacks Value score of F, a Zacks Growth score of D and a Zacks Momentum score of F.

(3) ON Semiconductor (ON - Free Report) : I see a $63 share price and a market cap of $27.3B. There is a Zacks Value score of D, a Zacks Growth score of B and a Zacks Momentum score of D.

Short-term #1 Zacks Ranks look healthy. Long-term Zacks VGM scores look awful.

Key Global Macro

The FOMC meeting breaking up on Wednesday is the week’s marquee macro event.

On Monday, Japanese industrial production data for October comes out. Last month, this was -4.7% y/y. Does that slump keep reversing itself, there?

On Tuesday, the U.K.’s ILO household unemployment rate was 4.3% last month. This month, it should be 4.3%. Identical to the USA. Go figure.

The U.S. Producer Price Index (PPI) for November comes out. I see +8.6% y/y was the print last month. Realize, this is the last major U.S. price data before the Fed meeting this week.

On Wednesday, the Bank of Canada (BoC) core consumer price index (CPI) for November comes out. It was +3.8% y/y last month.

The FOMC rate decision, policy statement and economic projections hit the tape.

On Thursday, the Euro Area Markit manufacturing index for December should be 57.7.

We get news of a Bank of England (BoE) vote on a policy rate hike.

U.S. initial jobless claims last week were a multi-decade low of 184K. What of this week?

The Bank of Japan (BoJ) policy decisions hit the tape.

On Friday, the U.S. Markit manufacturing PMI for December hits the tape. I see a 58.5 number is the call.

Conclusion

I have spoken about this in podcasts at Zacks last week. The idea that Fed Chair Powell and the rest of the FOMC speed up the taper is now the consensus. It is likely fully priced in.

In light of that, the “dot plot” rate projections (out at the same time on Wednesday) likely trump the ‘news’ of a faster Powell taper timeline. As long as the faster taper ends around late March.

Traders, and the stock markets they play in, are forward-looking. They move on fast.

Bulls: Get that booster shot and assist the tape.

Warm regards,

John Blank


See More Zacks Research for These Tickers


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