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A Burst in the Geopolitical Landscape? Global Week Ahead
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Before this Global Week Ahead begins, richly-valued growth stocks have already hit the brakes.
Rising U.S. Treasury yields -- sparked by growing speculation that the Fed will start hiking as early as March 2022 – have dampened growth stock enthusiasm.
As U.S. Q4-21 earnings season kicks off, traders also must reckon with an unexpected financial/geopolitical landscape, bursting sometime in 2022.
Unrest in Kazakhstan, along with a Russian military build-up on Ukraine’s border, and major Belarus unrest, has put NATO diplomacy back on most stock traders’ agendas.
On top of that, don’t forget about Mainland China. That country keeps its zero COVID strategy on with shutdowns -- ahead of the February 2022 Winter Olympics it is hosting.
Still, this market’s tone may improve — at any time.
We have had three years in a row of great U.S. stock returns. Risk markets are unlikely to give bullish sentiment up easily.
Here are Reuters’ five world market themes, reordered for equity traders--
(1) Time for Q4-21 Earnings Season
Massive profit increases from U.S. companies helped fuel last year's +27% gain in the S&P 500. As the earnings season kicks off in coming days, companies will likely have a difficult time posting similar numbers for the fourth quarter.
Earnings for S&P500 companies are expected to jump +22.3%, according to Refinitiv IBES — a robust increase, though a lower clip than in the first, second and third quarters.
Big Wall Street banks JPMorgan, Citigroup and Wells Fargo will be first in line to report. Investors are keen to hear about inflation, whether companies believe the supply chain bottlenecks that helped drive prices up last year will ease in coming months and forecasts for 2022.
S&P500 profit growth is expected to slow to +8.4% from +49.7% in 2021.
(2) How High Will Long-Term U.S. Treasury Rates Go?
The first week of trading in 2022 has been anything but dull for the world's biggest bond markets.
Short-dated Treasury yields shot up to highs not seen since early 2020, 10-year yields are up over 20 bps, Germany's -0.06% Bund yield is lurching closer to 0% and sovereign borrowing costs from Britain to Australia are at multi-month highs.
The message is clear: tighter monetary policy is likely sooner than anticipated, with the United States leading the way. Until data or central bank-speak contradicts this, 10-year Treasury yields could reach the 2% milestone soon.
Investors will also keep a close eye on real yields since a view that inflation-adjusted yields will remain low has fueled the risk asset rally.
The first week's 30 bps jump in U.S. real yields, may not make for a happy new year for some.
(3) Geopolitics: Will Kazakhstan’s Protests Create a Domino Effect Against Putin?
Deadly protests in Kazakhstan — the worst violence in its 30 years of independence — have added to the list of flare ups in the region being felt well beyond its borders.
Once again, Russia plays a key role. The Kremlin deploying troops is widely seen as a gamble to secure its interests in the oil and uranium-producing Central Asian nation.
Reverberations are felt throughout commodity markets and weighed on the rouble as Russia finds itself again in the limelight – tensions over Ukraine have loomed large over its markets.
The outcome of unrest in Kazakhstan is yet unclear.
But markets will have to sift through the fallout for geopolitical risk and diplomatic alignments for some time to come.
(4) Enjoy the Chinese New Year… Under Lockdown
For millions in China the new year began as the old ended – under lockdown COVID-19 cases are few, particularly of the Omicron variant, but restrictions are spreading fast as authorities keep a zero-tolerance policy before next month's Winter Olympics.
Xian is more than two weeks into a lockdown and harsh rules are rolling out across central China. All 400,000 residents of Yongji, in Shanxi Province, were ordered to remain indoors this week after the virus was detected on a railway turnstile.
The measures could render moot any further easing of zooming producer prices in December data due on Wednesday, especially if they trigger fresh supply-chain disruption around the world.
(5) Wild Moves in Bitcoin Prices
After a wild 2021, bitcoin's new year hangover has lingered into the first week of 2022 — and might get worse.
The computing power of its network dropped sharply this week as Kazakhstan's internet was shut down during its uprising, hitting its cryptocurrency mining industry — the second biggest in the world.
The drop in bitcoin "hashrate" might, in theory, hit its price. The more miners on the network, the greater the amount of computing power needed to mine new bitcoin. If miners drop off the network, it becomes easier for the remaining miners to produce new coins — boosting supply, in theory.
Bitcoin has fallen below $41,000 to its lowest since late September, with hawkish signs from the Fed adding to the malaise.
Some see it slipping further into the $30,000-range. Crypto investors will be searching for signs bitcoin can get off the ropes.
Top Zacks #1 Rank (STRONG BUY) Stocks
I noted 3 major U.S. consumer retail outfits on our #1 list. Let’s explore their metrics.
(1) Home Depot (HD - Free Report) : This is an expensive $405 a share home goods retailer stock. I see a Zacks Value score of D, a Zacks Growth score of D and a Zacks Momentum score of F.
(2) Lowe’s (LOW - Free Report) : This is another expensive $257 a share home goods retailer stock. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of C.
(3) Autozone (AZO - Free Report) : This is a truly astounding $2,062 a share auto parts retailer stock. I see a Zacks Value score of C, a Zacks Growth score of A and a Zacks Momentum score of C.
Surprisingly, the long-term Zacks VGM scores on this limited set of #1 U.S. retail stocks look best on the highest priced Autozone.
Key Global Macro
Earnings season starts on Friday.
The middle of the week brings us CPI and PPI updates, both in China and the USA.
On Monday, the Eurozone unemployment rate was 7.3%. We get the November update.
On Tuesday, the U.S. NFIB Small Business Optimism Index was a strong 98.4. We get December’s update.
On Wednesday, Mainland China’s consumer price index (CPI) was +2.3% y/y in NOV. We get the DEC data.
Mainland China’s producer price index (CPI) was +12.9% y/y in NOV. We get the DEC data.
Note the big differential between these 2 rates of inflation in Mainland China. Something has to give.
The USA’s Consumer Price Index (CPI) was +6.8% y/y in NOV. We get the DEC data.
On Thursday, we get Mainland China’s latest DEC export data (prior was +16.6% y/y) and import data (prior was +26.0%. Wow! Still the manufacturing engine of the world economy.
The USA’s Producer Price Index (PPI) was +9.6% y/y in NOV. We get the DEC data.
On Friday, Japan’s PPI was +9.0% y/y in NOV. We get the DEC data.
Note that the CPI and PPI pressure is seen globally. It truly is a COVID-era phenomenon.
U.S. Retail Sales, ex-autos, should be up +0.3% m/m in DEC. We escaped a hit from the port impasse.
Before the Market Opens (BMO) on Friday, the major U.S. banks, JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) , kick off the Q4-21 S&P500 earnings season.
Conclusion
I am watching Russia, Kazakhstan, Belarus and Ukraine’s internal political landscapes.
Very, very closely.
Decades of repressive rule have been imposed on this set of countries. Ukraine’s elected government appears to have broken cleanly from the rest of the group. Its strengthening independence is assisting the others to challenge their unchecked rulers.
Once the stability of a set of interwoven, corrupt rulers gets severely tested, regimes can collapse quickly.
This may be the big, unexpected event, altering 2022: a rolling set of crises bring regime change sweeping across the former Soviet region.
So, I am watching closely the news -- out of nations that remain under de facto Putin military control.
Happy trading and investing to all!
Warm Regards,
John Blank
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A Burst in the Geopolitical Landscape? Global Week Ahead
Before this Global Week Ahead begins, richly-valued growth stocks have already hit the brakes.
Rising U.S. Treasury yields -- sparked by growing speculation that the Fed will start hiking as early as March 2022 – have dampened growth stock enthusiasm.
As U.S. Q4-21 earnings season kicks off, traders also must reckon with an unexpected financial/geopolitical landscape, bursting sometime in 2022.
Unrest in Kazakhstan, along with a Russian military build-up on Ukraine’s border, and major Belarus unrest, has put NATO diplomacy back on most stock traders’ agendas.
On top of that, don’t forget about Mainland China. That country keeps its zero COVID strategy on with shutdowns -- ahead of the February 2022 Winter Olympics it is hosting.
Still, this market’s tone may improve — at any time.
We have had three years in a row of great U.S. stock returns. Risk markets are unlikely to give bullish sentiment up easily.
Here are Reuters’ five world market themes, reordered for equity traders--
(1) Time for Q4-21 Earnings Season
Massive profit increases from U.S. companies helped fuel last year's +27% gain in the S&P 500. As the earnings season kicks off in coming days, companies will likely have a difficult time posting similar numbers for the fourth quarter.
Earnings for S&P500 companies are expected to jump +22.3%, according to Refinitiv IBES — a robust increase, though a lower clip than in the first, second and third quarters.
Big Wall Street banks JPMorgan, Citigroup and Wells Fargo will be first in line to report. Investors are keen to hear about inflation, whether companies believe the supply chain bottlenecks that helped drive prices up last year will ease in coming months and forecasts for 2022.
S&P500 profit growth is expected to slow to +8.4% from +49.7% in 2021.
(2) How High Will Long-Term U.S. Treasury Rates Go?
The first week of trading in 2022 has been anything but dull for the world's biggest bond markets.
Short-dated Treasury yields shot up to highs not seen since early 2020, 10-year yields are up over 20 bps, Germany's -0.06% Bund yield is lurching closer to 0% and sovereign borrowing costs from Britain to Australia are at multi-month highs.
The message is clear: tighter monetary policy is likely sooner than anticipated, with the United States leading the way. Until data or central bank-speak contradicts this, 10-year Treasury yields could reach the 2% milestone soon.
Investors will also keep a close eye on real yields since a view that inflation-adjusted yields will remain low has fueled the risk asset rally.
The first week's 30 bps jump in U.S. real yields, may not make for a happy new year for some.
(3) Geopolitics: Will Kazakhstan’s Protests Create a Domino Effect Against Putin?
Deadly protests in Kazakhstan — the worst violence in its 30 years of independence — have added to the list of flare ups in the region being felt well beyond its borders.
Once again, Russia plays a key role. The Kremlin deploying troops is widely seen as a gamble to secure its interests in the oil and uranium-producing Central Asian nation.
Reverberations are felt throughout commodity markets and weighed on the rouble as Russia finds itself again in the limelight – tensions over Ukraine have loomed large over its markets.
The outcome of unrest in Kazakhstan is yet unclear.
But markets will have to sift through the fallout for geopolitical risk and diplomatic alignments for some time to come.
(4) Enjoy the Chinese New Year… Under Lockdown
For millions in China the new year began as the old ended – under lockdown COVID-19 cases are few, particularly of the Omicron variant, but restrictions are spreading fast as authorities keep a zero-tolerance policy before next month's Winter Olympics.
Xian is more than two weeks into a lockdown and harsh rules are rolling out across central China. All 400,000 residents of Yongji, in Shanxi Province, were ordered to remain indoors this week after the virus was detected on a railway turnstile.
The measures could render moot any further easing of zooming producer prices in December data due on Wednesday, especially if they trigger fresh supply-chain disruption around the world.
(5) Wild Moves in Bitcoin Prices
After a wild 2021, bitcoin's new year hangover has lingered into the first week of 2022 — and might get worse.
The computing power of its network dropped sharply this week as Kazakhstan's internet was shut down during its uprising, hitting its cryptocurrency mining industry — the second biggest in the world.
The drop in bitcoin "hashrate" might, in theory, hit its price. The more miners on the network, the greater the amount of computing power needed to mine new bitcoin. If miners drop off the network, it becomes easier for the remaining miners to produce new coins — boosting supply, in theory.
Bitcoin has fallen below $41,000 to its lowest since late September, with hawkish signs from the Fed adding to the malaise.
Some see it slipping further into the $30,000-range. Crypto investors will be searching for signs bitcoin can get off the ropes.
Top Zacks #1 Rank (STRONG BUY) Stocks
I noted 3 major U.S. consumer retail outfits on our #1 list. Let’s explore their metrics.
(1) Home Depot (HD - Free Report) : This is an expensive $405 a share home goods retailer stock. I see a Zacks Value score of D, a Zacks Growth score of D and a Zacks Momentum score of F.
(2) Lowe’s (LOW - Free Report) : This is another expensive $257 a share home goods retailer stock. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of C.
(3) Autozone (AZO - Free Report) : This is a truly astounding $2,062 a share auto parts retailer stock. I see a Zacks Value score of C, a Zacks Growth score of A and a Zacks Momentum score of C.
Surprisingly, the long-term Zacks VGM scores on this limited set of #1 U.S. retail stocks look best on the highest priced Autozone.
Key Global Macro
Earnings season starts on Friday.
The middle of the week brings us CPI and PPI updates, both in China and the USA.
On Monday, the Eurozone unemployment rate was 7.3%. We get the November update.
On Tuesday, the U.S. NFIB Small Business Optimism Index was a strong 98.4. We get December’s update.
On Wednesday, Mainland China’s consumer price index (CPI) was +2.3% y/y in NOV. We get the DEC data.
Mainland China’s producer price index (CPI) was +12.9% y/y in NOV. We get the DEC data.
Note the big differential between these 2 rates of inflation in Mainland China. Something has to give.
The USA’s Consumer Price Index (CPI) was +6.8% y/y in NOV. We get the DEC data.
On Thursday, we get Mainland China’s latest DEC export data (prior was +16.6% y/y) and import data (prior was +26.0%. Wow! Still the manufacturing engine of the world economy.
The USA’s Producer Price Index (PPI) was +9.6% y/y in NOV. We get the DEC data.
On Friday, Japan’s PPI was +9.0% y/y in NOV. We get the DEC data.
Note that the CPI and PPI pressure is seen globally. It truly is a COVID-era phenomenon.
U.S. Retail Sales, ex-autos, should be up +0.3% m/m in DEC. We escaped a hit from the port impasse.
Before the Market Opens (BMO) on Friday, the major U.S. banks, JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) , kick off the Q4-21 S&P500 earnings season.
Conclusion
I am watching Russia, Kazakhstan, Belarus and Ukraine’s internal political landscapes.
Very, very closely.
Decades of repressive rule have been imposed on this set of countries. Ukraine’s elected government appears to have broken cleanly from the rest of the group. Its strengthening independence is assisting the others to challenge their unchecked rulers.
Once the stability of a set of interwoven, corrupt rulers gets severely tested, regimes can collapse quickly.
This may be the big, unexpected event, altering 2022: a rolling set of crises bring regime change sweeping across the former Soviet region.
So, I am watching closely the news -- out of nations that remain under de facto Putin military control.
Happy trading and investing to all!
Warm Regards,
John Blank