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Bond Rates Set Stock Directions: Global Week Ahead

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In the Global Week Ahead, U.S. Treasury bond market rates seem critical to many.

These traders are torn over whether 10-year Treasury bond yields will keep falling.

  • This means Thursday’s U.S. Personal Consumption Expenditure (PCE) data will be more important than ever, to bond and stock traders alike
  • Rate differences also weigh on the U.S. dollar, at a seasonally weak time of year

In Asia, Mainland China mulls its target growth outlook.

In the Middle East, world leaders gather in Dubai for a summit on climate change.

Any agreement, on how to deal with it, or pay to tackle it? That seems a distant prospect.

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

(1) U.S. Personal Consumption Expenditure (PCE) data is out Thursday, Nov. 30th.

On the heels of an encouraging report on consumer prices, markets are hoping that another relatively tame U.S. inflation report can support the end of the Federal Reserve's interest rate hiking campaign.

The PCE price index, due on Nov 30th, is expected to show no change in October from the prior month, according to a Reuters poll. The PCE index rose +0.4% in September, matching the rise in August.

Another key inflation gauge, the Consumer Price Index (CPI), was unchanged in October, lifting equity prices, as it bolstered the view that the Fed was probably done raising interest rates.

As investors assess how much the economy may be cooling, other key economic reports due in the coming days include a Consumer Confidence Index on Nov 28th. The October reading showed a third-straight monthly decline.

(2) Eurozone HICP (consumer inflation) data is out on Thursday, Nov. 30th.

Eurozone inflation data on Nov. 30th may well confirm a trend of price rises moderating.

But if traders react by bringing forward bets on when the European Central Bank might cut interest rates, expect monetary policymakers to push back.

After the ostensibly good news that consumer price rises slowed to 2.9% in October, ECB president Christine Lagarde warned borrowing costs would need to stay restrictive for many months ahead.

On Nov. 21st, ECB officials were talking down market expectations that the central bank would lower its main deposit rate from a record 4% as soon as April 2024.

Policymakers remain wary of any hopes for rate cuts spilling over into increased bank lending and household spending, renewing inflationary pressures.

Eurozone bond yields, stuck in a narrow range, are predicting that this tug of war between market optimism and central bank caution will continue for quite some time.

(3) December looms. The U.S. dollar heads into a seasonally weak time of year.

The U.S. dollar is heading for its weakest monthly performance for a year, with a loss so far of 2.7%.

The prospect of a rapid flip to rate cuts by the Federal Reserve next year has driven investors into beaten-down Treasuries, pushing yields down by the most in a month in four years and boosting stocks, at the expense of the U.S. dollar. The timing of this combination looks tricky for the greenback.

Seasonally, December is the worst month for dollar performance. Since 1973, the dollar has lost an average of -0.9% in December. But it does tend to recover those losses in January, with an average gain of +0.98%.

The stats don't favor a three-, or even a two-month, drop. There have been 16 years in which the dollar has fallen in November and December, but only four when it's fallen in November, December and the January of the following year.

(4) China planners likely put another +5.0% annual real GDP growth target out.

Despite the massive economic headwinds from a teetering property market and tepid domestic demand, compounded by record youth unemployment, China's top economic adviser plans to recommend a +5% growth target for a second year, Reuters exclusively reported on Nov 22nd.

To get there, though, they say more fiscal stimulus is needed, as next year's number won't be flattered by the low base effect of 2021's stringent COVID-19 lockdowns. Markets clearly expect the same, with mainland equities drifting lower as investors bide their time.

So far, support measures have largely fallen short, meaning meeting this year's growth target will also be tight. On Thursday, China releases official manufacturing PMI data, which last month showed an unexpected contraction, killing momentum for an economic recovery.

(5) In Dubai, United Nation Conference of the Parties for 2028 gets underway.

COP28 gets underway in Dubai and securing an agreement on how to tackle global warming and, crucially, how to pay for it looks as difficult as ever for the near 200 countries and institutions attending.

The main goals set out by COP President — and UAE oil boss — Sultan Ahmed Al Jaber are to speed up the move away from fossil fuels; supercharge climate finance; preserve biodiversity and a fabled "loss and damage" fund to ensure the poorest and most vulnerable countries are not left to fend for themselves.

With no consensus likely and pessimism around the key 1.5 degree warming target, the best that can be hoped for might be more money and focus from the big multilateral institutions like the World Bank, as well as deals on uncontroversial areas like tripling global renewable energy capacity.

Zacks #1 Rank (STRONG BUY) Stocks

(1) XPO Inc. (XPO - Free Report) :
This is an $89 stock with a market cap of $10.3B. It is in the Truck Transportation industry. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of D.

Zacks Investment Research
Image Source: Zacks Investment Research

XPO Inc. is a provider of asset-based less-than-truckload transportation principally in North America, with proprietary technology which moves goods efficiently.

XPO Inc., formerly known as XPO Logistics, is headquartered in Greenwich, CT.

(2) EMCOR Group (EME - Free Report) : This is a $216 stock with a market cap of $10.2B. It is in the Building Products-Heavy Construction industry. I see a Zacks Value score of C, a Zacks Growth score of A and a Zacks Momentum score of D.

Zacks Investment Research
Image Source: Zacks Investment Research

EMCOR Group is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, as well as building services for a diverse range of businesses. The company serves commercial, industrial, utility and institutional clients.

The company currently operates under the following reportable segments:

United States Mechanical Construction and Facilities Services (39.1%) – This involves systems for fire protection; heating, ventilation, air conditioning, refrigeration and clean-room process ventilation; water and wastewater treatment and central plant heating and cooling; plumbing, process and high-purity piping; millwrighting; steel fabrication, erection and welding; as well as controls and filtration.

United States Building Services (24.6%) – This segment provides various types of support services related to operation and maintenance of clients’ facilities in the U.S. These include commercial and government site-based operations and maintenance; military base operations support services; infrastructure and building projects for federal, state and local governmental agencies.

United States Electrical Construction and Facilities Services (contributing 22% to total revenues for 2022) – This comprises systems for premises electrical and lighting systems; electrical power transmission and distribution; roadway and transit lighting; fiber optic lines; voice and data communication; as well as low-voltage systems, such as fire alarm, security and process control.

United States Industrial Services (10%) – This segment comprises industrial maintenance and services that are needed for refineries and petrochemical plants such as designing, manufacturing, repairing and hydro blast cleaning of shell and tube heat exchangers and related equipment; overhaul and maintenance of critical process units in refineries and petrochemical plants.

United Kingdom Building Services (4.3%) – This segment provides support services related to operation and maintenance of commercial and government client facilities in the U.K.

(3) Dropbox (DBX - Free Report) : This is a $28 stock with a market cap of $9.7B. It is in the Internet Services industry. I see a Zacks Value score of D, a Zacks Growth score of B and a Zacks Momentum score of D.

Zacks Investment Research
Image Source: Zacks Investment Research

Dropbox, Inc. is a service company. It offers a platform which enables users to store and share files, photos, videos, songs and spreadsheets.

Dropbox, Inc. is headquartered in San Francisco, CA.

Key Global Macro

As you can see, Thursday is the busy macro event day this week.

On Monday, U.S. New Home Sales come out for OCT. I see a 0.759M prior SEP print. The consensus sees a lower +0.73M this time.

On Tuesday, the U.S. S&P/Case-Shiller Home Price Indices for SEP come out. I see a +2.2% y/y print.

On Wednesday, the Bank of New Zealand (RBNZ) policy rate decision and monetary policy statement comes out. I see a 5.5% policy rate now.

There is a non-monetary policy ECB meeting too.

On Thursday, the U.S. core personal consumption expenditures price index for OCT comes out. I see a +3.7% y/y prior print.

The Eurozone core harmonized index of consumer prices (HICP) for NOV comes out. The prior y/y reading was +4.2%.

The Eurozone household unemployment rate also comes out. I see a 6.5% prior reading there.

The NBS China manufacturing PMI (prior was 49.5) and the non-manufacturing PMI (prior was 50.6) come out for NOV.

There is an OPEC meeting too.

On Friday, the ISM manufacturing PMI for NOV comes out. The prior OCT print was 46.7.

Fed Chair Powell gives a speech.


We ended the last short trading week with a “Black Friday” shopping extravaganza.

This “Black Friday” generated $9.8 billion in U.S. online sales, according to Adobe Analytics, up +7.5% from a year ago.

After “Cyber Monday,” sales will likely taper off through the rest of the holiday season, as retailers trim discounts.

Sales tracking -- at a company level and with a national U.S. retail sales index -- can assess the current strength of consumer spending, over a longer time period.

  • Scotiabank’s holiday shopping report, running from Oct. 2nd to the present, showed 2023 daily sales revenue was tracking closely to 2022.
  • Over a longer period, the National Retail Federation forecasts nominal sales growth of just 3 to 4% y/y. If they are right, this implies little to no annual retail sales growth – in consumer price inflation-adjusted terms.

It’s also possible.

This Christmas holiday shopping season could be more about experiences and services spending, than a focus on goods spending.

That’s it for me.

Have an excellent trading and investing week!

John Blank
Zacks Chief Equity Strategist and Economist

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