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The Fed Favorite, U.S. Core PCE: Global Week Ahead

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In the Global Week Ahead, the world’s financial markets head into YE 2023 on a "buy everything" high.

This happened after the Federal Reserve signaled it will switch to policy rate cuts in 2024, propelling all stock indexes and gold prices higher.

On Tuesday, the Bank of Japan (BoJ) could finally hint at an end to its ultra-loose monetary policy.

The road into 2024 for investors with Japan? That could be bumpy.

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

(1) On Friday, the U.S. core Personal Consumption Expenditure (PCE) price index comes out for November.

Investors hope a key U.S. inflation gauge will show easing consumer price pressures, after the Fed signaled its campaign of interest rate hikes is ending and cuts may arrive next year.

The Friday, Dec. 22nd release of November's personal consumption expenditures (PCE) price index, which the Fed tracks, will be one of the last key pieces of data this year. Fed Chair Jerome Powell has said the historic tightening of monetary policy is likely over and discussion of rate cuts is coming "into view.”

Data on consumer confidence, as investors seek to gauge how much higher interest rates may be weighing on spending, is also due out. Whether the Fed has been able to engineer a soft landing for the U.S. economy is a key market theme as the calendar flips to 2024.

(2) Gold prices are headed for a first annual increase since 2020.

Gold is heading for its first annual increase since 2020, fueled by a weaker dollar and by the view that interest rates and inflation are going one way and fast in 2024.

Gold, which bears no interest, tends to perform better in an environment of falling real rates — those adjusted for inflation.

Real U.S. 10-year yields have been rising non-stop since early 2022, but only turned positive in June, knocking gold back from a near-record. They are now at their highest in eight years, but this has been no barrier to gold vaulting above $2,000 an ounce. And yet the price is still some 20% below its inflation-adjusted all-time high above $2,500 in 1980.

Investors are banking on a flurry of rate cuts next year, while political and economic uncertainty are on the rise, potentially heralding a sweet spot for gold investors.

(3) Will the Bank of Japan (BoJ) soon exit negative interest rates?

Speculation is rife the Bank of Japan (BOJ) may soon exit negative interest rates, once again making it a global outlier as the focus at the Fed and others turns to when to cut rates.

A change likely won't come as soon as the policy decision on Tuesday, but the BOJ meets again in January, and next week could be used to prepare the way for tightening.

That expected pivot, plus the Fed's dovish tilt, has pushed the yen back to the stronger side of 141 per dollar for the first time since July.

A political scandal over suspected kickbacks could ironically provide a tailwind to ending easing, as Prime Minister Fumio Kishida clears his cabinet of pro-stimulus elements.

A reversal of politically unpopular yen weakness may help his sagging approval ratings, but the speed of yen strength could also be damaging. The Nikkei has lagged most other major stock indices this month.

(4) There is an update on the U.K.’s high inflation.

U.K. inflation is running at more than double the Bank of England's (BoE) 2% target. Latest data on Dec. 20 may confirm UK price pressures remain elevated compared to other major economies.

The pound hit a three-month high against the euro this month after euro zone inflation dropped sharply, fueling speculation the BoE will take longer to cut rates than the European Central Bank.

But high rates could also tip the UK economy, which the BoE expects to flat-line in 2024 — into recession — meaning sterling strength is not a one-way bet. The pound's fate rests on whether the BoE keeps reacting to current inflation trends, or takes the longer-term view that economic weakness will dampen wages and prices.

(5) An Egyptian Election happens at an unsettling time for that region.

Egyptian President Abdel Fattah al-Sisi's third straight election win should be officially confirmed on Monday. With little in the way of opposition, the former general has cruised this one, but faces a daunting list of challenges.

War in Gaza is raging next door and Egypt is grappling with an economic crisis fueled by near-record inflation and past borrowing sprees that mean its debt interest payments alone now eat up almost half the government's revenues.

Economists say that is unsustainable. At least $42.26 billion is due in 2024, including $4.89 billion to the International Monetary Fund (IMF).

The first move after the election looks set to be another big currency devaluation. Egypt's pound has already halved against the dollar since March 2022. A dollar now fetches about 49 Egyptian pounds on the black market versus an official rate of 31 pounds. FX forwards markets say the same.

Zacks #1 Rank (STRONG BUY) Stocks

Let’s look into Mainland China’s major domestic electric vehicle maker; a multi-national Spanish bank, with lots of business in Latin America; and a Shanghai-based hotelier.

(1) Byd Company Ltd. (BYDDY - Free Report) : This is a $54 stock with a market cap of $77.9B. It resides in the Foreign Auto industry. I see a Zacks Value score of B, a Zacks Growth score of C, and a Zacks Momentum score of A.

BYD Co. is principally engaged in the research, development, manufacture and distribution of automobiles, secondary rechargeable batteries and mobile phone components.

It's Automobiles and Related Products segment manufactures and sells automobiles, and auto-related moulds and components. The company researches, develops, manufactures and sells batteries, which are applied on mobile phones, cordless phones, power tools and other kinds of portable electronic devices.

Its rechargeable battery business provides lithium-ion batteries and nickel batteries. BYD's mobile phone components and assembly business segment engages in the manufacture and sale of mobile handset components, such as housings and keypads; and provides assembly services.

It has operations primarily in China, India, Hungary and Brazil.

BYD is based in Shenzhen, the People's Republic of China.

(2) Banco Bilbao Viscaya Argentaria (BBVA - Free Report) : This is a $9 stock with a market cap of $54.9B. It resides in the Foreign Bank industry. I see a Zacks Value score of B, a Zacks Growth score of D and a Zacks Momentum score of F.

Zacks Investment Research
Image Source: Zacks Investment Research

Banco Bilbao Vizcaya is engaged in a wide variety of banking, financial and related activities in Spain.

(3) H World Group Ltd. Sponsored ADR (HTHT - Free Report) : This is a $34 stock with a market cap of $11.4B. It resides in the Hotels and Motels industry. I see a Zacks Value score of D, a Zacks Growth score of A and a Zacks Momentum score of A.

Zacks Investment Research
Image Source: Zacks Investment Research

H World Group Limited is involved in the hotel industry.

Its brands include Hi Inn, Elan Hotel, HanTing Hotel, JI Hotel, Starway Hotel, Orange Hotel, Crystal Orange Hotel, Manxin Hotel, Madison Hotel, Joya Hotel, Blossom House, Ni Hao Hotel, CitiGO Hotel, Steigenberger Hotels & Resorts, MAXX, Jaz in the City, IntercityHotel, Zleep Hotels, Steigenberger Icon and Song Hotels.

The company's business includes leased and owned, managed, and franchised models.

H World Group, formerly known as Huazhu Group, is based in Shanghai.

Key Global Macro

The most likely market-moving print this week lands on Friday: U.S. core PCE.

On Monday, the U.S. NAHB housing market index for DEC comes out. I see a 34 reading is the prior.

Mainland China’s FDI – Foreign Direct Investment – YTD thru NOV comes out. I see a -9.4% prior reading.

On Tuesday, the Bank of Japan (BoJ) supplies an interest rate decision. That is currently at -0.1%. There is a monetary policy statement and press conference that will accompany it.

Eurozone core harmonized index of consumer prices for NOV comes out. +3.6% is the consensus, following a prior +3.6% prior reading. The broad HICP looks to be +2.4% y/y, the same as the month before too.

U.S. housing starts come out for NOV. I see 1.36M following a 1.372M prior reading.

On Wednesday, there is a People’s Bank of China (PBoC) interest rate decision. That stands at 3.45%.

U.S. existing home sales for NOV come out. I see a 3.78M number following a 3.79M prior print.

On Thursday, U.S. core personal consumption expenditures for Q3 come out. That looks to be +2.3% y/y. A third and final GDP number for the U.S. comes out too. The 2nd print was +5.2%.

On Friday, the U.S. core personal consumption expenditure (PCE) price index for NOV comes out. The prior reading was +3.5% y/y. This is the consumer inflation rate the FOMC cares about.

The U.S. NOV broad PCE comes out too. The prior broad PCE was at +3.0% y/y.


On Dec. 6th, 2023, Zacks Research Director Sheraz Mian supplied an update on the next Q4-23 earnings season.

Here are his four key points—

(1) Q4-23 earnings for the S&P500 index are currently expected to be up +0.1% from the year-earlier level on +2.3% higher revenues.

This would follow the +3.4% earnings growth in Q3-23 on +2.0% higher revenues.

(2) Earnings estimates for Q4-23 have been steadily coming down since the quarter got underway.

The current +0.1% growth pace for Q4-23 is down from +5.5% in early October.

This is a bigger decline in earnings estimates compared to what we saw in the comparable periods for the first three quarters of 2023.

(3) The negative revisions trend for Q4-23 is fairly broad-based, with earnings estimates for 12 of the 16 Zacks sectors coming down since the quarter got underway.

(4) The Q3-23 earnings season isn’t officially finished yet, with results from 6 S&P500 members still awaited.

Earnings growth turned positive in Q3-23, after three back-to-back quarters of declines.

That’s it for me.

Have a nice Xmas holiday.

Happy trading and investing!

John Blank
Zacks Chief Equity Strategist and Economist

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