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Finally, we will hear from more stressed U.S. regional banks.
In terms of macro data, the first snapshot of business activity in April (the PMIs) could provide a sense of how much pain the turmoil in the banking sector has inflicted on the world economy.
Away from the U.S., Mainland China and the U.K. release key macro data.
Officials from G7 nations talk about climate goals in Japan.
Next are Reuters' five world market themes, reordered for equity traders—
(1) Q1 will begin an earnings recession. How long and how deep?
U.S. earnings season goes up a gear. The outlook is gloomy, due to the regional banking crisis, and the most aggressive monetary policy tightening in decades.
Analysts expect Q1 S&P500 earnings to fall -5.2% from the year-ago period, Refinitiv I/B/E/S data as of April 7th showed.
This would follow an earnings fall in Q4-2022, a back-to-back decline known as an earnings recession. That has not occurred since COVID-19 blasted corporate results in 2020.
Yet with the bar set low, better-than-expected results, or upbeat guidance, could give stocks another lift. The S&P500 is up roughly +7.8% in the year to date.
(2) On Friday, a number of flash PMIs come out.
Flash PMIs (Purchasing Managers Index) for April globally are out Friday.
These real-time indicators of business conditions could provide an idea of whether banking turmoil is already affecting activity.
The IMF just cut its global growth forecast and warned problems in the financial sector meant the world economy was more likely to undershoot than surpass its estimates.
The PMIs should show whether growth is slowing, and, if so, where in the world and how quickly. These questions are fast becoming a major driver for markets, as central banks near the end of rate hikes.
Traders are betting on the Federal Reserve cutting rates by year-end, an expectation predicated on a major U.S. slowdown in the second half.
Recent PMI data showed activity in Europe holding up relatively well. Any signs that remains the case could keep blue-chip European shares near 22-year highs.
(3) Macro data from Mainland China will inform us, too.
China watchers are confused and upcoming data — including first quarter GDP, March retail sales and industrial output — may leave them just as befuddled.
Domestic inflation is muted, exports are rising and credit growth strong.
The bear case can easily be made that subdued inflation is betraying a wary domestic consumer, banks are being forced to lend, and the bounce in exports will be short-lived as external demand ebbs and the likes of Apple shift more production to Southeast Asia.
Those holding onto a bullish reopening thesis, however, expect more stimulus. That could come next week too, as a big batch of central bank medium-term loans is repriced.
In a sign of which way the authorities want lending rates to head, smaller regional banks have already cut deposit rates.
(4) Key U.K. macro data is out on Tuesday and Wednesday.
It's a big week for U.K. data, with February jobs figures on Tuesday and March inflation numbers Wednesday.
Bank of England policymakers, who expect inflation to ease, may have their fingers crossed for good news. Inflation unexpectedly rose to +10.4% in February, pushed up by higher food and drink prices in pubs and restaurants, data that likely cemented the case for March's rate hike.
Markets anticipate at least one more rate increase. Sticky inflation remains the obstacle to just where rates will peak, with food inflation running at +18%, a level last seen in 1977.
Supermarket group Tesco (TSCO - Free Report) just cut the price of milk -- regarded as a staple in Britain -- for the first time since May 2020, a possible early sign that a surge in food inflation (and the BoE's inflation headache) may now abate.
(5) A G7 climate, energy, and environment summit happens in Japan.
Ministers from the Group of Seven nations convene in Japan this weekend for a meeting on climate, energy and the environment, while foreign ministers also gather ahead of a G7 Summit in Hiroshima next month.
The spotlight on net zero targets and addressing climate change could be stolen by the energy crisis, sparked by Russia's invasion of Ukraine, and ways to tackle it.
A case for new investments in natural gas supply could be made, even though assessments show that such investments would thwart globally agreed climate change goals.
Geopolitical tensions, meanwhile, could overshadow the gatherings.
The G7's commitment to supporting Ukraine is likely a given, while U.S./China tensions over Taiwan remain in focus, with China's President Xi Jinping seeking to strengthen combat military training.
Zacks #1 Rank (STRONG BUY) Stocks
Want to trade a top large-cap Silicon Valley tech stock? One that is not overvalued? Good luck with that!
I list three Zacks #1 Rank Info Tech stocks with Zacks Value scores of F below.
(1) Airbnb ABNB: This is a $114 stock, from an IPO that happened on Dec. 2020. It supplies rental listings for unique stays and experiences via the Internet.
It has a market cap of $73B. I see a Zacks Value score of F, a Zacks Growth score of C, and a Zacks Momentum score of F.
The company is based in San Francisco, CA.
(2) Palo Alto Networks (PANW - Free Report) : This is a $198 stock. It offers network security solutions to enterprises, service providers and government entities worldwide.
It has a market cap of $59.9B. I see a Zacks Value score of F, a Zacks Growth score of D, and a Zacks Momentum score of F.
The company is based in Santa Clara, CA.
(3) Cadence Design Systems (CDNS - Free Report) : This is a $217 stock. This company offers products and tools that help customers to design electronic products. Through System Design Enablement (SDE) strategy the company offers software, hardware, services and reusable IC design blocks (IPs) to electronic systems and semiconductor customers.
It has a market cap of $59.2B. I see a Zacks Value score of F, a Zacks Growth score of D, and a Zacks Momentum score of F.
The company is based in San Jose, CA.
Key Global Macro
There will be lots of U.S. housing macro data out this week. A lower 10-year U.S. Treasury rate is providing mortgage financing support to this sector.
On Monday, the NAHB housing market index for April in the USA arrives. I see a 43 is consensus. The prior is 44.
On Tuesday, Mainland China’s Q1 GDP should be up +4.8% y/y, after printing +2.9% y/y in the quarter before.
China’s retail sales for March (+0.8% y/y) and industrial production for March (+3.1% y/y) also come out.
U.S. building permits (a spring 2.2M is expected versus 1.55M prior) and U.S. starts (1.38M is expected versus 1.45M prior) come out.
On Wednesday, the Euro Area HICP inflation rate for March should be +6.9% y/y, the same as the prior reading. The Euro Area core HICP for March should be +5.7% y/y, versus +5.7% y/y in the prior reading.
The Fed’s Beige Book comes out.
On Thursday, there is a PBoC policy rate decision. 3.65% is where that stands now.
U.S. jobless claims should be 239K for week ending April 14th.
Existing U.S. home sales should be a higher 4.94M in March versus 4.58M in February.
On Friday, Japan’s Jibun Bank manufacturing PMI should be 48.9 in April. The prior is 49.2.
The Euro Area S&P Global manufacturing PMI should be 46.9 in April. The prior is 47.3.
The U.S. global manufacturing PMI should be 48.7 in April. The prior is 49.2.
Conclusion
Major U.S. banks always start each S&P500 reporting season.
In the aftermath of the March regional U.S. banking crisis, their Q1-23 reporting results get studied for signs of building stress.
What Zacks Research Director Sheraz Mian wrote on April 14th —
“The market liked what it saw in the quarterly releases from JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and even Wells Fargo (WFC - Free Report) .”
“There was plenty to like in these results, with higher interest rates helping these big players expand their margins while demand for loans remained strong, helping loan portfolios grow.”
“The bank worries that took center stage in the wake of the Silicon Valley Bank fiasco didn’t pertain to these big players. JPMorgan, Citi, and Wells Fargo, which reported Friday morning, and Bank of America, which is scheduled to report Tuesday morning (April 18th), regularly go through the Fed’s stress tests and are perceived as very safe.”
“The diminished confidence in the banking space is specifically centered on the small and mid-sized regional banks that will start reporting results this week.”
“The flight to safety among depositors has forced these banks to offer much higher deposit rates to stem the tide. This will show up in net-interest margin pressures relative not only to what came through from the likes of JPMorgan, Citi, and Wells Fargo Friday morning but also relative to what these same banks had reported in the preceding period.”
“Returning to the group’s Q1 results, the fact that the investment banking business was weak during the period was no surprise for the market.”
“We knew that advisory fees would, at best, be about two-thirds of what they were in the year-earlier period, as tighter monetary policy and other macroeconomic headwinds have been weighing on deal-making.”
Warm Regards, John Blank Zacks Chief Equity Strategist and Economist
See More Zacks Research for These Tickers
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Will Any Banks Show Signs of Stress? Global Week Ahead
In the Global Week Ahead, Q1 earnings season gets into full swing.
Last Friday, Briefing.com summarized five major U.S. bank earnings results—
That’s a full set of five meaningful EPS beats!
This week, we get more Q1 results from major financial firms —
Finally, we will hear from more stressed U.S. regional banks.
In terms of macro data, the first snapshot of business activity in April (the PMIs) could provide a sense of how much pain the turmoil in the banking sector has inflicted on the world economy.
Away from the U.S., Mainland China and the U.K. release key macro data.
Officials from G7 nations talk about climate goals in Japan.
Next are Reuters' five world market themes, reordered for equity traders—
(1) Q1 will begin an earnings recession. How long and how deep?
U.S. earnings season goes up a gear. The outlook is gloomy, due to the regional banking crisis, and the most aggressive monetary policy tightening in decades.
In addition to big banks such as Goldman Sachs (GS - Free Report) , Morgan Stanley (MS - Free Report) and Bank of America (BAC - Free Report) , big names reporting next week include Johnson & Johnson (JNJ - Free Report) and Netflix (NFLX - Free Report) on April 18th and Tesla (TSLA - Free Report) on April 19th.
Analysts expect Q1 S&P500 earnings to fall -5.2% from the year-ago period, Refinitiv I/B/E/S data as of April 7th showed.
This would follow an earnings fall in Q4-2022, a back-to-back decline known as an earnings recession. That has not occurred since COVID-19 blasted corporate results in 2020.
Yet with the bar set low, better-than-expected results, or upbeat guidance, could give stocks another lift. The S&P500 is up roughly +7.8% in the year to date.
(2) On Friday, a number of flash PMIs come out.
Flash PMIs (Purchasing Managers Index) for April globally are out Friday.
These real-time indicators of business conditions could provide an idea of whether banking turmoil is already affecting activity.
The IMF just cut its global growth forecast and warned problems in the financial sector meant the world economy was more likely to undershoot than surpass its estimates.
The PMIs should show whether growth is slowing, and, if so, where in the world and how quickly. These questions are fast becoming a major driver for markets, as central banks near the end of rate hikes.
Traders are betting on the Federal Reserve cutting rates by year-end, an expectation predicated on a major U.S. slowdown in the second half.
Recent PMI data showed activity in Europe holding up relatively well. Any signs that remains the case could keep blue-chip European shares near 22-year highs.
(3) Macro data from Mainland China will inform us, too.
China watchers are confused and upcoming data — including first quarter GDP, March retail sales and industrial output — may leave them just as befuddled.
Domestic inflation is muted, exports are rising and credit growth strong.
The bear case can easily be made that subdued inflation is betraying a wary domestic consumer, banks are being forced to lend, and the bounce in exports will be short-lived as external demand ebbs and the likes of Apple shift more production to Southeast Asia.
Those holding onto a bullish reopening thesis, however, expect more stimulus. That could come next week too, as a big batch of central bank medium-term loans is repriced.
In a sign of which way the authorities want lending rates to head, smaller regional banks have already cut deposit rates.
(4) Key U.K. macro data is out on Tuesday and Wednesday.
It's a big week for U.K. data, with February jobs figures on Tuesday and March inflation numbers Wednesday.
Bank of England policymakers, who expect inflation to ease, may have their fingers crossed for good news. Inflation unexpectedly rose to +10.4% in February, pushed up by higher food and drink prices in pubs and restaurants, data that likely cemented the case for March's rate hike.
Markets anticipate at least one more rate increase. Sticky inflation remains the obstacle to just where rates will peak, with food inflation running at +18%, a level last seen in 1977.
Supermarket group Tesco (TSCO - Free Report) just cut the price of milk -- regarded as a staple in Britain -- for the first time since May 2020, a possible early sign that a surge in food inflation (and the BoE's inflation headache) may now abate.
(5) A G7 climate, energy, and environment summit happens in Japan.
Ministers from the Group of Seven nations convene in Japan this weekend for a meeting on climate, energy and the environment, while foreign ministers also gather ahead of a G7 Summit in Hiroshima next month.
The spotlight on net zero targets and addressing climate change could be stolen by the energy crisis, sparked by Russia's invasion of Ukraine, and ways to tackle it.
A case for new investments in natural gas supply could be made, even though assessments show that such investments would thwart globally agreed climate change goals.
Geopolitical tensions, meanwhile, could overshadow the gatherings.
The G7's commitment to supporting Ukraine is likely a given, while U.S./China tensions over Taiwan remain in focus, with China's President Xi Jinping seeking to strengthen combat military training.
Zacks #1 Rank (STRONG BUY) Stocks
Want to trade a top large-cap Silicon Valley tech stock? One that is not overvalued? Good luck with that!
I list three Zacks #1 Rank Info Tech stocks with Zacks Value scores of F below.
(1) Airbnb ABNB: This is a $114 stock, from an IPO that happened on Dec. 2020. It supplies rental listings for unique stays and experiences via the Internet.
It has a market cap of $73B. I see a Zacks Value score of F, a Zacks Growth score of C, and a Zacks Momentum score of F.
The company is based in San Francisco, CA.
(2) Palo Alto Networks (PANW - Free Report) : This is a $198 stock. It offers network security solutions to enterprises, service providers and government entities worldwide.
It has a market cap of $59.9B. I see a Zacks Value score of F, a Zacks Growth score of D, and a Zacks Momentum score of F.
The company is based in Santa Clara, CA.
(3) Cadence Design Systems (CDNS - Free Report) : This is a $217 stock. This company offers products and tools that help customers to design electronic products. Through System Design Enablement (SDE) strategy the company offers software, hardware, services and reusable IC design blocks (IPs) to electronic systems and semiconductor customers.
It has a market cap of $59.2B. I see a Zacks Value score of F, a Zacks Growth score of D, and a Zacks Momentum score of F.
The company is based in San Jose, CA.
Key Global Macro
There will be lots of U.S. housing macro data out this week. A lower 10-year U.S. Treasury rate is providing mortgage financing support to this sector.
On Monday, the NAHB housing market index for April in the USA arrives. I see a 43 is consensus. The prior is 44.
On Tuesday, Mainland China’s Q1 GDP should be up +4.8% y/y, after printing +2.9% y/y in the quarter before.
China’s retail sales for March (+0.8% y/y) and industrial production for March (+3.1% y/y) also come out.
U.S. building permits (a spring 2.2M is expected versus 1.55M prior) and U.S. starts (1.38M is expected versus 1.45M prior) come out.
On Wednesday, the Euro Area HICP inflation rate for March should be +6.9% y/y, the same as the prior reading. The Euro Area core HICP for March should be +5.7% y/y, versus +5.7% y/y in the prior reading.
The Fed’s Beige Book comes out.
On Thursday, there is a PBoC policy rate decision. 3.65% is where that stands now.
U.S. jobless claims should be 239K for week ending April 14th.
Existing U.S. home sales should be a higher 4.94M in March versus 4.58M in February.
On Friday, Japan’s Jibun Bank manufacturing PMI should be 48.9 in April. The prior is 49.2.
The Euro Area S&P Global manufacturing PMI should be 46.9 in April. The prior is 47.3.
The U.S. global manufacturing PMI should be 48.7 in April. The prior is 49.2.
Conclusion
Major U.S. banks always start each S&P500 reporting season.
In the aftermath of the March regional U.S. banking crisis, their Q1-23 reporting results get studied for signs of building stress.
What Zacks Research Director Sheraz Mian wrote on April 14th —
“The market liked what it saw in the quarterly releases from JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and even Wells Fargo (WFC - Free Report) .”
“There was plenty to like in these results, with higher interest rates helping these big players expand their margins while demand for loans remained strong, helping loan portfolios grow.”
“The bank worries that took center stage in the wake of the Silicon Valley Bank fiasco didn’t pertain to these big players. JPMorgan, Citi, and Wells Fargo, which reported Friday morning, and Bank of America, which is scheduled to report Tuesday morning (April 18th), regularly go through the Fed’s stress tests and are perceived as very safe.”
“The diminished confidence in the banking space is specifically centered on the small and mid-sized regional banks that will start reporting results this week.”
“The flight to safety among depositors has forced these banks to offer much higher deposit rates to stem the tide. This will show up in net-interest margin pressures relative not only to what came through from the likes of JPMorgan, Citi, and Wells Fargo Friday morning but also relative to what these same banks had reported in the preceding period.”
“Returning to the group’s Q1 results, the fact that the investment banking business was weak during the period was no surprise for the market.”
“We knew that advisory fees would, at best, be about two-thirds of what they were in the year-earlier period, as tighter monetary policy and other macroeconomic headwinds have been weighing on deal-making.”
Warm Regards,
John Blank
Zacks Chief Equity Strategist and Economist