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Across the Global Week Ahead, the U.S. and world financial markets put the wraps on what has been a turbulent month of May.
What's on tap?
U.S. nonfarm payroll additions for May on Friday
A European consumer price inflation update shows up on Tuesday, and
Mainland China business activity data comes out, both Tuesday and Wednesday
Taken together, this three-region set of macro data could set the tone for June.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) Sell in May and Go Away, then Buy in June?
The sell-in-May-and-go-away adage applies to equities and yes, investors dumped stocks, especially those listed on the tech-heavy Nasdaq.
But softer data have brought buyers back to bonds, so equities have bounced. Yields on the global Bloomberg-Barclays index have slipped over 10 bps in May.
Still, there is no sign of any monetary policy respite, with Australia, New Zealand, the United States and Britain all upping rates in May to hit inflation.
June will bring more of the same: a 50-bps rate hike in Canada and the United States, and a likely quarter-point Bank of England move. Rate-hike laggards, the ECB and Switzerland, should lay out policy-tightening plans.
But listen to rate-setters' language. Some reckon the Fed may signal a pause if data worsens.
Sell in May could give way to buy in June.
(2) U.S. Nonfarm Payroll Data Friday
Friday's U.S. jobs data could show whether the Federal Reserve's cumulative 75 basis points worth of rate hikes since March are being felt by a robust labor market.
Analysts polled by Reuters forecast the economy added +350K jobs in May, versus a solid +428K in April.
Recession worries are now rising, with data showing weakness in areas such as housing. Some banks warn of an increased chance of an economic downturn.
Yet any signs of a softening in the jobs market may not slow a Fed intent on raising rates as high as needed to squash inflation, a battle Fed chief Powell concedes will bring “pain."
Markets expect 50-bps hikes in June and July.
(3) Have Traders Seen the Peak in the U.S. Dollar?
After soaring to two-decade highs, the dollar rally has gone into reverse. Against a basket of currencies, it has fallen -3% from mid-May peaks, while the euro has rebounded to a one-month high.
Investors are worried the U.S economy may not prove as resilient to a downturn as they thought, should interest rates keep rising.
Added to that, ECB boss Christine Lagarde just signaled that an end to negative interest rates is round the corner — showing that even rate-hike laggards are joining the tightening party.
Few investors are willing to call a dollar peak just yet — another tumble on financial markets could see it bid up as a safe-haven once again — but most will keep close tabs on data to see how the U.S. economy is faring.
(4) Euro Area Inflation Updated Tuesday
Euro area inflation rose to another record high of 8.1% in May, versus 7.4% in April.
This should seal the case for policy normalization at the European Central Bank, which meets on June 9th.
Economists and markets expect a 25-bps hike in July but a very strong inflation print may fuel talk of a bigger move, which some ECB officials are already pushing for.
The United States, Canada and New Zealand have opted for larger 50-bps rate hikes, given inflationary pressures they had underestimated.
The ECB hasn't kicked off its hiking cycle yet and with inflation well above its 2% target, it may be time to get moving.
(5) China’s Zero-COVID Policy Kills Off Growth Rate
The cost of China's zero-COVID lockdown strategy is clear, with Premier Li Keqiang decrying the economic damage done and pledging to salvage "reasonable" growth for this quarter.
China has announced a broad package of economy-boosting policy steps, and Li promised detailed guidelines for their implementation soon.
Yet many economists project a contraction this quarter after a raft of bleak data, including a soaring jobless rate.
The health of factories will be on display with the release of the forward-looking PMIs Tuesday and Wednesday.
And while Shanghai aims for a June 1st exit from a crippling, multi-week lockdown, Beijing is tightening controls.
No wonder markets appear to lack confidence: the CSI300 stock index is down -20% this year and the yuan is not far off its weakest levels since 2020.
Top Zacks #1 Rank (STRONG BUY) Stocks
Here are three worthy large-cap names to look into this week:
(1) Weyerhaeuser (WY - Free Report) : This wood building products industry stock trades around $40 a share, making for a market cap of $28.9B. I see a Zacks Value score of C, a Zacks Growth score of C and a Zacks Momentum score of A.
(2) Delta Airlines (DAL - Free Report) : This major U.S. airline’s shares trade at $41 now, making for a market cap of $26.2B. I see a Zacks Value score of B, a Zacks Growth score of A and a Zacks Momentums score of F.
(3) Monolithic Power Systems (MPWR - Free Report) : This is an analog and mixed semiconductor stock. I see a whopping $422 a share price, making for a market cap of $19.7B. I note a Zacks Value score of F, a Zacks Growth score of B and Zacks Momentum score of B.
Key Global Macro
Updated Mainland China PMIs come out on Tuesday and Wednesday.
The Euro Area HICP inflation rate lands on Tuesday.
The U.S. nonfarm payroll data for May comes out on Friday.
On Monday, the first day of an EU Leader’s summit happened. It was decided, among other things, that 90% of Russian oil and gas will not be welcome in Europe. Price caps on energy had not been decided.
The U.S. enjoyed a Memorial Day vacation.
Japan’s unemployment rate for April fell to 2.5%, beneath expectations for 2.7%, after a 2.6% print in March.
On Tuesday, this is the second day of the EU Leader’s summit.
China’s NBS manufacturing PMI for May came in at 49.6, up after a weak 47.4 in April.
China’s Non-manufacturing PMI for May only reached 47.8, down from expectations of 50.7, after a dreadful 41.9 in April.
The Euro Area’s HICP (their key consumer inflation gauge) came in at a record-high +8.1%, from an expected +7.6% y/y in May, after a +7.4% print in April.
The Euro Area core HICP rate reached +3.8% in May, 20 basis points higher than +3.6% expected. That difference shows the effects Food and Energy prices are having on Europe’s economy these days.
U.S. Case Shiller Home Prices amounted to +20.9% in March year over year, from +20.8% y/y expected. This index is delayed 2 months.
On Wednesday, Mainland China’s smaller private company Caixin manufacturing PMI should be 47 in May, similar to a 46 in April. Not as low as one might think!
The Euro Area’s S&P global manufacturing PMI for May comes out. The prior was 54.4.
The U.S. ISM manufacturing PMI for May should be good at 56.3. That number should be up from 55.4 in April.
U.S. JOLTS job openings for April should be 11.77M, up from 11.54M in March.
The Fed’s Beige Book of regional economic conditions comes out.
On Thursday, there is an OPEC meeting.
U.S. ADP private payroll job additions for May come out. The prior data showed +247K jobs added.
On Friday, U.S. nonfarm payrolls come out. +428K is the prior reading.
Average Hourly U.S. earnings should be up +5.6% y/y in May.
The U.S. U6 unemployment rate (a broader one) should be 6.9%, down from 7.0% in April. The household unemployment rate should remain steady at 3.6%.
Conclusion
I finish with Zacks Research Director Sheraz Mian’s latest update on the U.S. S&P 500 earnings outlook for Q2:
(1) For Q2-22, expect total S&P 500 earnings to increase +2.7% from the same period last year on +9.4% higher revenues.
Net S&P 500 profit margin compression should come in at 85 basis points.
(2) Exclude the hefty contribution from the Energy sector
Then, total Q2 earnings for the rest of the S&P 500 index goes down -4.2% on +7.2% higher revenues.
(3) Q2 earnings estimates have gone up for 6 S&P 500 sectors.
The biggest gains are found in the Energy sector, followed up by Transportation, Basic Materials, Construction, Consumer Staples and Autos.
That’s it for me.
Have a successful trading week!
Warm Regards,
John Blank Zacks Chief Equity Strategist and Economist
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Time to Buy in June? Global Week Ahead
Across the Global Week Ahead, the U.S. and world financial markets put the wraps on what has been a turbulent month of May.
What's on tap?
Taken together, this three-region set of macro data could set the tone for June.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) Sell in May and Go Away, then Buy in June?
The sell-in-May-and-go-away adage applies to equities and yes, investors dumped stocks, especially those listed on the tech-heavy Nasdaq.
But softer data have brought buyers back to bonds, so equities have bounced. Yields on the global Bloomberg-Barclays index have slipped over 10 bps in May.
Still, there is no sign of any monetary policy respite, with Australia, New Zealand, the United States and Britain all upping rates in May to hit inflation.
June will bring more of the same: a 50-bps rate hike in Canada and the United States, and a likely quarter-point Bank of England move. Rate-hike laggards, the ECB and Switzerland, should lay out policy-tightening plans.
But listen to rate-setters' language. Some reckon the Fed may signal a pause if data worsens.
Sell in May could give way to buy in June.
(2) U.S. Nonfarm Payroll Data Friday
Friday's U.S. jobs data could show whether the Federal Reserve's cumulative 75 basis points worth of rate hikes since March are being felt by a robust labor market.
Analysts polled by Reuters forecast the economy added +350K jobs in May, versus a solid +428K in April.
Recession worries are now rising, with data showing weakness in areas such as housing. Some banks warn of an increased chance of an economic downturn.
Yet any signs of a softening in the jobs market may not slow a Fed intent on raising rates as high as needed to squash inflation, a battle Fed chief Powell concedes will bring “pain."
Markets expect 50-bps hikes in June and July.
(3) Have Traders Seen the Peak in the U.S. Dollar?
After soaring to two-decade highs, the dollar rally has gone into reverse. Against a basket of currencies, it has fallen -3% from mid-May peaks, while the euro has rebounded to a one-month high.
Investors are worried the U.S economy may not prove as resilient to a downturn as they thought, should interest rates keep rising.
Added to that, ECB boss Christine Lagarde just signaled that an end to negative interest rates is round the corner — showing that even rate-hike laggards are joining the tightening party.
Few investors are willing to call a dollar peak just yet — another tumble on financial markets could see it bid up as a safe-haven once again — but most will keep close tabs on data to see how the U.S. economy is faring.
(4) Euro Area Inflation Updated Tuesday
Euro area inflation rose to another record high of 8.1% in May, versus 7.4% in April.
This should seal the case for policy normalization at the European Central Bank, which meets on June 9th.
Economists and markets expect a 25-bps hike in July but a very strong inflation print may fuel talk of a bigger move, which some ECB officials are already pushing for.
The United States, Canada and New Zealand have opted for larger 50-bps rate hikes, given inflationary pressures they had underestimated.
The ECB hasn't kicked off its hiking cycle yet and with inflation well above its 2% target, it may be time to get moving.
(5) China’s Zero-COVID Policy Kills Off Growth Rate
The cost of China's zero-COVID lockdown strategy is clear, with Premier Li Keqiang decrying the economic damage done and pledging to salvage "reasonable" growth for this quarter.
China has announced a broad package of economy-boosting policy steps, and Li promised detailed guidelines for their implementation soon.
Yet many economists project a contraction this quarter after a raft of bleak data, including a soaring jobless rate.
The health of factories will be on display with the release of the forward-looking PMIs Tuesday and Wednesday.
And while Shanghai aims for a June 1st exit from a crippling, multi-week lockdown, Beijing is tightening controls.
No wonder markets appear to lack confidence: the CSI300 stock index is down -20% this year and the yuan is not far off its weakest levels since 2020.
Top Zacks #1 Rank (STRONG BUY) Stocks
Here are three worthy large-cap names to look into this week:
(1) Weyerhaeuser (WY - Free Report) : This wood building products industry stock trades around $40 a share, making for a market cap of $28.9B. I see a Zacks Value score of C, a Zacks Growth score of C and a Zacks Momentum score of A.
(2) Delta Airlines (DAL - Free Report) : This major U.S. airline’s shares trade at $41 now, making for a market cap of $26.2B. I see a Zacks Value score of B, a Zacks Growth score of A and a Zacks Momentums score of F.
(3) Monolithic Power Systems (MPWR - Free Report) : This is an analog and mixed semiconductor stock. I see a whopping $422 a share price, making for a market cap of $19.7B. I note a Zacks Value score of F, a Zacks Growth score of B and Zacks Momentum score of B.
Key Global Macro
Updated Mainland China PMIs come out on Tuesday and Wednesday.
The Euro Area HICP inflation rate lands on Tuesday.
The U.S. nonfarm payroll data for May comes out on Friday.
On Monday, the first day of an EU Leader’s summit happened. It was decided, among other things, that 90% of Russian oil and gas will not be welcome in Europe. Price caps on energy had not been decided.
The U.S. enjoyed a Memorial Day vacation.
Japan’s unemployment rate for April fell to 2.5%, beneath expectations for 2.7%, after a 2.6% print in March.
On Tuesday, this is the second day of the EU Leader’s summit.
China’s NBS manufacturing PMI for May came in at 49.6, up after a weak 47.4 in April.
China’s Non-manufacturing PMI for May only reached 47.8, down from expectations of 50.7, after a dreadful 41.9 in April.
The Euro Area’s HICP (their key consumer inflation gauge) came in at a record-high +8.1%, from an expected +7.6% y/y in May, after a +7.4% print in April.
The Euro Area core HICP rate reached +3.8% in May, 20 basis points higher than +3.6% expected. That difference shows the effects Food and Energy prices are having on Europe’s economy these days.
U.S. Case Shiller Home Prices amounted to +20.9% in March year over year, from +20.8% y/y expected. This index is delayed 2 months.
On Wednesday, Mainland China’s smaller private company Caixin manufacturing PMI should be 47 in May, similar to a 46 in April. Not as low as one might think!
The Euro Area’s S&P global manufacturing PMI for May comes out. The prior was 54.4.
The U.S. ISM manufacturing PMI for May should be good at 56.3. That number should be up from 55.4 in April.
U.S. JOLTS job openings for April should be 11.77M, up from 11.54M in March.
The Fed’s Beige Book of regional economic conditions comes out.
On Thursday, there is an OPEC meeting.
U.S. ADP private payroll job additions for May come out. The prior data showed +247K jobs added.
On Friday, U.S. nonfarm payrolls come out. +428K is the prior reading.
Average Hourly U.S. earnings should be up +5.6% y/y in May.
The U.S. U6 unemployment rate (a broader one) should be 6.9%, down from 7.0% in April. The household unemployment rate should remain steady at 3.6%.
Conclusion
I finish with Zacks Research Director Sheraz Mian’s latest update on the U.S. S&P 500 earnings outlook for Q2:
(1) For Q2-22, expect total S&P 500 earnings to increase +2.7% from the same period last year on +9.4% higher revenues.
Net S&P 500 profit margin compression should come in at 85 basis points.
(2) Exclude the hefty contribution from the Energy sector
Then, total Q2 earnings for the rest of the S&P 500 index goes down -4.2% on +7.2% higher revenues.
(3) Q2 earnings estimates have gone up for 6 S&P 500 sectors.
The biggest gains are found in the Energy sector, followed up by Transportation, Basic Materials, Construction, Consumer Staples and Autos.
That’s it for me.
Have a successful trading week!
Warm Regards,
John Blank
Zacks Chief Equity Strategist and Economist