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Starting before the market opens (BMO) on Thursday, the initial earnings reports from Q2 arrive from the major U.S. banks.
In terms of macro circumstances, the U.S. dollar's +12% year-to-date rise has raised global concerns.
This will surely be debated when G20 policymakers meet on July 15th to 16th in Bali.
All the more so, according to Reuters, if the U.S. dollar vaults to parity against the euro for the first time in 20 years.
In the Global Week Ahead, outside the USA, U.K. politics also take center stage.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) On Thursday, U.S. Banks Kick Off Q2 Earnings Season
U.S. banks kick off second-quarter earnings, and it's not looking pretty. Yes, higher interest rates are helpful, but economic growth is also slowing.
So while Refinitiv I/B/E/S estimates show overall S&P 500 earnings growing an annualized 6% in Q2, financials are expected to rack up a 20% drop in earnings.
Much of that decline stems from worsening outlooks for loan losses, as interest-rate rises increase the risk of borrower defaults. Accounting standards require banks to factor macro-economic views into loss provisions, and thus results.
Fee income could stutter, too, brokerage Wedbush predicts, citing pressure from mortgages and capital markets revenue.
Morgan Stanley and JPMorgan kick off earnings Thursday, followed by Citi, State Street and Wells Fargo the next day.
Overall, Q2 results should shed light on the outlook for profit margins, input costs and hiring. And listen out for what company bosses say about a potential recession.
(2) The Euro Is the U.S. Dollar’s Latest Victim
Europe's single currency is the dollar's latest victim.
Now at 20-year lows around $1.016, it could soon eyeball parity, hit by the dollar's broad safe-haven appeal but also by surging gas prices that have fanned recession risks in the euro area.
Wednesday's data, expected to show headline U.S. inflation rising +8.7% year-on-year in June versus May's +8.6%, could cement bets on another hefty Federal Reserve rate hike and lift the dollar further.
G20 finance ministers and central bankers, meeting July 15-16 in Bali, are watching. Tightening financial conditions have cratered markets, and with the dollar so strong, a kind of 'reverse currency war' is underway, where countries prefer stronger exchange rates to dampen inflation.
(3) Watching U.K. Decisions, as PM Johnson Exits
The resignation of Britain's scandal-ridden Prime Minister Boris Johnson means the world's fifth-biggest economy is further adrift — just as sterling hovers near two-year lows and Britons endure the worst cost-of-living squeeze in decades.
But if the Westminster drama is dominating TV screens, markets have sat quietly watching from the sidelines. That may change once the new government's priorities become clear.
Nadhim Zahawi, appointed finance minister just days ago, may review some tax hike plans and could cut others. But while loosening the purse strings may support sterling, it could inflame inflation, already seen heading past +11%.
May GDP numbers on Wednesday will likely reinforce the growth gloom but don't discount the potential for the Westminster chaos to hit markets.
(4) China’s COVID Lockdown Costs Mount
Weeks after lifting an oppressive two-month lockdown, China is racing to contain a cluster of COVID cases centered on a Shanghai karaoke lounge. With new cases flaring, mass testing and fresh activity curbs have been introduced.
The economic cost of draconian zero-COVID policies will come into relief on Friday, when China releases second-quarter GDP figures.
Economists say the official +5.5% GDP target is out of reach, but President Xi Jinping remains committed to the zero-COVID policies, choosing "temporary" economic costs over endangering lives.
Investors are concerned. Shanghai stocks have paused their five-week winning streak, while growth fears have sent iron ore to its lowest level for the year.
(5) What Central Banks Are Going to Raise Policy Rates Another 50 Basis Points?
When even central banking doves such as Switzerland raise interest rates by half a percent, the Royal Bank of Canada and the Reserve Bank of New Zealand can hardly opt for 25 basis-point moves.
The RBNZ has already raised rates five times straight to 2%. Given it projects rates to double to 4% in the coming year, analysts reckon it will deliver another half-point move on July 13.
The same day, the Bank of Canada could lift rates by 75 bps to 2.25%, having delivered back-to-back 50 bps hikes. That would be its biggest move since 1998.
But watch for hints that rate hikes may slow. New Zealand business confidence is worsening and housing markets are softening. Canada, meanwhile, is assigned a 35% chance of recession over the coming year.
Top Zacks #1 Rank (STRONG BUY) Stocks
Let’s look at three #1 ranked large-cap Tech stocks this week.
(1) Broadcom (AVGO - Free Report) : Yes, this chip darling stock is a near $500 a share still. That makes for a market cap of $201.3B. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of F.
(2) Pinduoduo (PDD - Free Report) : This is a Mainland China Internet Commerce stock. It provides an e-commerce platform, primarily thru Tencent’s Wechat app. It trades at $62 a share, making for a market cap of $77B. I see a Zacks Value score of F, a Zacks Growth score of D and a Zacks Momentum score of C.
(3) Baidu (BIDU - Free Report) : This is the Mainland Chinese search giant. Shares trade at $154, making for a market cap of $53.4B. I see a Zacks Value score of C, a Zacks Growth score of D and a Zacks Momentum score of D.
Large-cap China Tech is indeed heating up.
Key Global Macro
For sure: the Wednesday U.S. Consumer Price Inflation report is going to get all of the eyeballs this week.
On Monday, Japan’s producer price index (PPI) for June comes out. I see +9.1% y/y is the prior reading.
There is a Eurogroup meeting.
On Tuesday, the U.S. WASDE report on agricultural commodities comes out.
For the USA, the NFIB small business optimism index for June comes out. It was 932.1 in a prior reading.
On Wednesday, the Central Bank of New Zealand offers its latest rate decision. This small CB has been leading the policy rate hikes.
China’s exports for June come out. It was +15.3% y/y in a prior reading.
China’s imports for June also come out. This was +2.8% y/y in a prior reading.
The critical U.S. Consumer Price Index (CPI) for June lands. +8.7% y/y is the call, with +8.6% y/y the prior reading. Ex-food & energy CPI looks to be +5.9% y/y, versus +6.0% in a prior reading.
On Thursday, Australia’s consumer inflation expectations for July come out. I see a +6.7% y/y prior reading.
Australia’s unemployment rate for June also comes out. The prior is 3.9%.
On Friday, Mainland China’s Q2 GDP growth rate should be +4.4% y/y. That country retail sales for June look to be down -7.1% y/y, due to the COVID lockdowns.
Conclusion
To close, here are Zacks Research Director Sheraz Mian’s key earnings points, circa July 6th:
“For 2022 Q2, expect total S&P 500 earnings to increase +1.8% from the same period last year on +9.7% higher revenues and net margin compression of 98 basis points.
“Excluding the hefty contribution from the Energy sector, expect total Q2 earnings for the rest of the S&P 500 index to be down -5.6% on +7.5% higher revenues.
“Q2 earnings estimates have gone up for 6 sectors, with the biggest gains in the Energy sector, followed up by Transportation, Basic Materials, Construction, Consumer Staples, and Autos.
“Looking at the calendar-year picture, expect total S&P 500 earnings to be up +8.6% in 2022 and +8.8% in 2023. On an ex-Energy basis, total 2022 index earnings would be up +3.1% (instead of +8.6%, with Energy).”
That’s it for me.
Have a great trading and investing week!
Warm Regards,
John Blank Zacks Chief Equity Strategist and Economist
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The First Earnings Reports: Global Week Ahead
Starting before the market opens (BMO) on Thursday, the initial earnings reports from Q2 arrive from the major U.S. banks.
In terms of macro circumstances, the U.S. dollar's +12% year-to-date rise has raised global concerns.
This will surely be debated when G20 policymakers meet on July 15th to 16th in Bali.
All the more so, according to Reuters, if the U.S. dollar vaults to parity against the euro for the first time in 20 years.
In the Global Week Ahead, outside the USA, U.K. politics also take center stage.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) On Thursday, U.S. Banks Kick Off Q2 Earnings Season
U.S. banks kick off second-quarter earnings, and it's not looking pretty. Yes, higher interest rates are helpful, but economic growth is also slowing.
So while Refinitiv I/B/E/S estimates show overall S&P 500 earnings growing an annualized 6% in Q2, financials are expected to rack up a 20% drop in earnings.
Much of that decline stems from worsening outlooks for loan losses, as interest-rate rises increase the risk of borrower defaults. Accounting standards require banks to factor macro-economic views into loss provisions, and thus results.
Fee income could stutter, too, brokerage Wedbush predicts, citing pressure from mortgages and capital markets revenue.
Morgan Stanley and JPMorgan kick off earnings Thursday, followed by Citi, State Street and Wells Fargo the next day.
Overall, Q2 results should shed light on the outlook for profit margins, input costs and hiring. And listen out for what company bosses say about a potential recession.
(2) The Euro Is the U.S. Dollar’s Latest Victim
Europe's single currency is the dollar's latest victim.
Now at 20-year lows around $1.016, it could soon eyeball parity, hit by the dollar's broad safe-haven appeal but also by surging gas prices that have fanned recession risks in the euro area.
Wednesday's data, expected to show headline U.S. inflation rising +8.7% year-on-year in June versus May's +8.6%, could cement bets on another hefty Federal Reserve rate hike and lift the dollar further.
G20 finance ministers and central bankers, meeting July 15-16 in Bali, are watching. Tightening financial conditions have cratered markets, and with the dollar so strong, a kind of 'reverse currency war' is underway, where countries prefer stronger exchange rates to dampen inflation.
(3) Watching U.K. Decisions, as PM Johnson Exits
The resignation of Britain's scandal-ridden Prime Minister Boris Johnson means the world's fifth-biggest economy is further adrift — just as sterling hovers near two-year lows and Britons endure the worst cost-of-living squeeze in decades.
But if the Westminster drama is dominating TV screens, markets have sat quietly watching from the sidelines. That may change once the new government's priorities become clear.
Nadhim Zahawi, appointed finance minister just days ago, may review some tax hike plans and could cut others. But while loosening the purse strings may support sterling, it could inflame inflation, already seen heading past +11%.
May GDP numbers on Wednesday will likely reinforce the growth gloom but don't discount the potential for the Westminster chaos to hit markets.
(4) China’s COVID Lockdown Costs Mount
Weeks after lifting an oppressive two-month lockdown, China is racing to contain a cluster of COVID cases centered on a Shanghai karaoke lounge. With new cases flaring, mass testing and fresh activity curbs have been introduced.
The economic cost of draconian zero-COVID policies will come into relief on Friday, when China releases second-quarter GDP figures.
Economists say the official +5.5% GDP target is out of reach, but President Xi Jinping remains committed to the zero-COVID policies, choosing "temporary" economic costs over endangering lives.
Investors are concerned. Shanghai stocks have paused their five-week winning streak, while growth fears have sent iron ore to its lowest level for the year.
(5) What Central Banks Are Going to Raise Policy Rates Another 50 Basis Points?
When even central banking doves such as Switzerland raise interest rates by half a percent, the Royal Bank of Canada and the Reserve Bank of New Zealand can hardly opt for 25 basis-point moves.
The RBNZ has already raised rates five times straight to 2%. Given it projects rates to double to 4% in the coming year, analysts reckon it will deliver another half-point move on July 13.
The same day, the Bank of Canada could lift rates by 75 bps to 2.25%, having delivered back-to-back 50 bps hikes. That would be its biggest move since 1998.
But watch for hints that rate hikes may slow. New Zealand business confidence is worsening and housing markets are softening. Canada, meanwhile, is assigned a 35% chance of recession over the coming year.
Top Zacks #1 Rank (STRONG BUY) Stocks
Let’s look at three #1 ranked large-cap Tech stocks this week.
(1) Broadcom (AVGO - Free Report) : Yes, this chip darling stock is a near $500 a share still. That makes for a market cap of $201.3B. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of F.
(2) Pinduoduo (PDD - Free Report) : This is a Mainland China Internet Commerce stock. It provides an e-commerce platform, primarily thru Tencent’s Wechat app. It trades at $62 a share, making for a market cap of $77B. I see a Zacks Value score of F, a Zacks Growth score of D and a Zacks Momentum score of C.
(3) Baidu (BIDU - Free Report) : This is the Mainland Chinese search giant. Shares trade at $154, making for a market cap of $53.4B. I see a Zacks Value score of C, a Zacks Growth score of D and a Zacks Momentum score of D.
Large-cap China Tech is indeed heating up.
Key Global Macro
For sure: the Wednesday U.S. Consumer Price Inflation report is going to get all of the eyeballs this week.
On Monday, Japan’s producer price index (PPI) for June comes out. I see +9.1% y/y is the prior reading.
There is a Eurogroup meeting.
On Tuesday, the U.S. WASDE report on agricultural commodities comes out.
For the USA, the NFIB small business optimism index for June comes out. It was 932.1 in a prior reading.
On Wednesday, the Central Bank of New Zealand offers its latest rate decision. This small CB has been leading the policy rate hikes.
China’s exports for June come out. It was +15.3% y/y in a prior reading.
China’s imports for June also come out. This was +2.8% y/y in a prior reading.
The critical U.S. Consumer Price Index (CPI) for June lands. +8.7% y/y is the call, with +8.6% y/y the prior reading. Ex-food & energy CPI looks to be +5.9% y/y, versus +6.0% in a prior reading.
On Thursday, Australia’s consumer inflation expectations for July come out. I see a +6.7% y/y prior reading.
Australia’s unemployment rate for June also comes out. The prior is 3.9%.
On Friday, Mainland China’s Q2 GDP growth rate should be +4.4% y/y. That country retail sales for June look to be down -7.1% y/y, due to the COVID lockdowns.
Conclusion
To close, here are Zacks Research Director Sheraz Mian’s key earnings points, circa July 6th:
“For 2022 Q2, expect total S&P 500 earnings to increase +1.8% from the same period last year on +9.7% higher revenues and net margin compression of 98 basis points.
“Excluding the hefty contribution from the Energy sector, expect total Q2 earnings for the rest of the S&P 500 index to be down -5.6% on +7.5% higher revenues.
“Q2 earnings estimates have gone up for 6 sectors, with the biggest gains in the Energy sector, followed up by Transportation, Basic Materials, Construction, Consumer Staples, and Autos.
“Looking at the calendar-year picture, expect total S&P 500 earnings to be up +8.6% in 2022 and +8.8% in 2023. On an ex-Energy basis, total 2022 index earnings would be up +3.1% (instead of +8.6%, with Energy).”
That’s it for me.
Have a great trading and investing week!
Warm Regards,
John Blank
Zacks Chief Equity Strategist and Economist