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A Refresh for Consumer Price Inflation: Global Week Ahead
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In the Global Week Ahead, a flurry of macro data should give financial markets a clearer sense of how fast inflation is falling globally.
In geopolitics, turmoil in the Red Sea and oil price gains renew angst over price pressures.
Finally, U.S. banking giants kick off the Q4-23 S&P500 stock reporting season and crypto markets look set for more volatility.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) The major money center U.S. banks will kick off Q4-23 earnings season.
U.S. banking giants kick off earnings with JPMorgan Chase (JPM - Free Report) , Bank of America (BAC - Free Report) and Citigroup (C - Free Report) due to report fourth quarter and full-year results on Jan. 12th.
Top lenders brought in more income from interest payments in 2023 as the Fed raised rates, helping banks to offset a protracted slump in dealmaking revenue in Wall Street divisions.
Consumers are also in focus with household finances having remained largely healthy since the pandemic, but some customers, particularly those on lower incomes, are starting to fall behind on payments in greater numbers.
Commercial real estate will continue to be a drag meanwhile. Banks have set aside money to cover souring office loans last year. As many employees continue to work remotely or in hybrid arrangements, office owners who borrowed money to finance their buildings are likely to face further strains.
(2) On Thursday, Jan. 11th at 8:30 am ET, the U.S. DEC Consumer Price Inflation (CPI) data hits the tape.
U.S. stocks and bonds soared in late 2023 in anticipation of Federal Reserve rate cuts this year. Inflation data on Jan. 11th could show whether those expectations are warranted.
Gradually cooling inflation has increased bets that the central bank could begin lowering borrowing costs as early as March. Signs that inflation remained subdued in December would likely support that view, though a sharper-than-expected decline could also stoke fears that recent Fed rate increases are starting to weaken the economy.
Conversely, a report showing that consumer prices are rising again could spark concerns markets may have underestimated how long it could take for the Fed to defeat inflation.
Economists polled by Reuters expect the report to show a monthly +0.2% gain in consumer prices versus a +0.1% rise in November.
(3) CPI prints for Australia, China and Japan also come out.
Policymakers across Australia, China and Japan face critical inflation readings likely to provide a sense of whether they will have more, rather than less work in 2024.
The Reserve Bank of Australia, which is expected to join a rate-cut bandwagon later this year could find some relief, if there is a slowdown in November's inflation.
In contrast, a pick-up in consumer prices in Tokyo, a leading indicator of nationwide inflation trends, could cheer those betting on a Bank of Japan (BOJ) policy pivot. Such expectations sent a battered yen surging 5% versus the dollar in December.
Achieving its 2% inflation target "sustainably" is the pre-condition for BOJ officials to ending negative interest rates.
In China, figures on Friday will give further clarity on whether deflationary pressures continue to mount in the world's second largest economy.
(4) Hopes for a crypto ETF continue to rise.
Bitcoin kicked off the new year as it finished 2023 — with sharp gains after investors bet on the possible approval by U.S. regulators of exchange-traded spot bitcoin funds.
The biggest crypto token topped $45,000 for the first time since April 2022 on bets that such applications will get the nod from the Securities and Exchange Commission soon.
Market players say the SEC's decision may be imminent and could usher in a new wave of capital to crypto. Such hopes helped propel bitcoin in 2023 to yearly gains of more than +155%.
Yet the ever-volatile bitcoin has already trimmed its 2024 gains. Doubts linger, some analysts say, over how much demand will exist for any bitcoin ETF — and whether approval is already priced in.
(5) A Red Sea shipping crisis
Markets have been looking to oil prices for signs the Israel-Hamas dispute will push global inflation higher, but with expectations of heavy supply, oil does not tell the whole story.
As transport groups re-route vessels away from the Red Sea, retailers face the biggest shipping upheaval since COVID-19 stymied the freight industry in 2020.
The result could be Western retailers waiting longer for goods to arrive from China, with shortages pushing up prices, trade analysts say. The British Retail Consortium has said rising costs could reverse a trend of moderating grocery price inflation.
Markets, more focused on relatively moderate oil prices, have so far shown limited concern about Red Sea shipping. But investors would be wise to monitor freight costs for signs that the battle against inflation is not over.
Zacks #1 Rank (STRONG BUY) Stocks
(1) Martin Marietta Materials (MLM - Free Report) ): This is a $486 stock with a market cap of $29.8B in the Building Products – Concretes and Aggregates industry. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Martin Marietta Materials, Inc. produces and supplies construction aggregates and other heavy building materials, mainly cement, in the United States.
The end uses of the company's aggregates and cement are infrastructure, private residential and private non-residential construction. Railroad, agricultural, utility and environmental industries also use these products.
The company supplies aggregates (crushed stone, sand and gravel) through its network of quarries, mines and distribution yards.
(2) Ryanair (RYAAY - Free Report) : This is a $123 stock with a market cap of $27.6B in the Airline industry. I see a Zacks Value score of C, a Zacks Growth score of A and a Zacks Momentum score of F.
Image Source: Zacks Investment Research
Ryanair Holdings is the parent company of Ryanair Designated Activity Company (formerly known as Ryanair Limited).
Ryanair is an ultra-low fare carrier that offers scheduled-passenger airline service in Ireland, the U.K., Continental Europe, Morocco and Israel. Also, it serves short-haul, point-to-point routes.
(3) Cloudfare (NET - Free Report) : This is a $77 stock with a market cap of $25.6B in the Internet Software industry. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of C.
Image Source: Zacks Investment Research
Headquartered in San Francisco, CA, Cloudflare Inc. is a global cloud services provider that delivers a suite of deeply integrated products, including website and application services solutions, Cloudflare One, developer-based solutions and consumer offerings.
Cloudflare’s website and application security offerings ensure internet properties like websites, applications and application programming interface (APIs) are safe from attack, fast and reliable, while website and application performance offerings enhance conversions and user experiences by reducing churn and accelerating web and mobile performance of the customers.
Key Global Macro
Thursday’s U.S. CPI print for DEC should be the major trader focus.
On Monday, Euro Area retail sales fell -0.3%, though were expected to be up +0.3% m/m in NOV, after printing an upwardly revised +0.4% m/m reading the month prior.
Preliminary Australian retail sales for NOV should be up +1.3% m/m.
On Tuesday, the Euro Area household unemployment rate for NOV should stay at 6.5%.
South Korea’s household unemployment rate for DEC should be 3.0%, higher than the 2.8% prior reading.
On Wednesday, Mainland China’s New Yuan Loans for DEC should be 1225B, versus a 1090B prior print.
On Thursday, Brazil’s consumer inflation rate for DEC should be 4.35% y/y versus a 4.68% y/y prior reading.
Out at 8:30 am ET, the U.S. core CPI should be +4.0% y/y in DEC, versus +4.0% y/y in NOV. The broad CPI for DEC should be +3.0% y/y versus +3.1% y/y in NOV.
Mainland China’s CPI for DEC should be -0.7% y/y, versus a -0.5% y/y NOV print.
On Friday, India’s CPI for DEC should be +5.7% y/y versus a +5.5% y/y NOV print.
Conclusion
Let’s finish with Dec. 29th, 2023 snippets --from Zacks Research Director Sheraz Mian-- on the Q4-23 earnings season:
(1) 2022 Q4 earnings are expected to be down -0.4% on +2.3% higher revenues.
This follows the +3.8% earnings growth reading in the preceding period (Q3-2023) and three back-to-back quarters of declining earnings before that.
(2) Looking ahead, estimates for full-year 2024 have also been coming down. Though, the revisions trend appears to have started improving again lately.
(3) One S&P500 sector whose earnings outlook appears to have notably turned around is the Tech sector.
This sector has a bigger bearing on the aggregate earnings picture than any of the 15 Zacks sectors in the S&P500 index, as it is on track to bring in more than 28% of the index’s total earnings over the coming four-quarter period.
Other sectors whose 2024 earnings estimates also appear to have inched up lately include Retail, Autos, Aerospace and Utilities.
(4) While estimates for all the other sectors are still under pressure, sectors facing the most pressure on estimates include Transportation, Industrial Products and Consumer Discretionary.
Happy trading and investing!
John Blank Zacks Chief Equity Strategist and Economist
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A Refresh for Consumer Price Inflation: Global Week Ahead
In the Global Week Ahead, a flurry of macro data should give financial markets a clearer sense of how fast inflation is falling globally.
In geopolitics, turmoil in the Red Sea and oil price gains renew angst over price pressures.
Finally, U.S. banking giants kick off the Q4-23 S&P500 stock reporting season and crypto markets look set for more volatility.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) The major money center U.S. banks will kick off Q4-23 earnings season.
U.S. banking giants kick off earnings with JPMorgan Chase (JPM - Free Report) , Bank of America (BAC - Free Report) and Citigroup (C - Free Report) due to report fourth quarter and full-year results on Jan. 12th.
Top lenders brought in more income from interest payments in 2023 as the Fed raised rates, helping banks to offset a protracted slump in dealmaking revenue in Wall Street divisions.
Consumers are also in focus with household finances having remained largely healthy since the pandemic, but some customers, particularly those on lower incomes, are starting to fall behind on payments in greater numbers.
Commercial real estate will continue to be a drag meanwhile. Banks have set aside money to cover souring office loans last year. As many employees continue to work remotely or in hybrid arrangements, office owners who borrowed money to finance their buildings are likely to face further strains.
(2) On Thursday, Jan. 11th at 8:30 am ET, the U.S. DEC Consumer Price Inflation (CPI) data hits the tape.
U.S. stocks and bonds soared in late 2023 in anticipation of Federal Reserve rate cuts this year. Inflation data on Jan. 11th could show whether those expectations are warranted.
Gradually cooling inflation has increased bets that the central bank could begin lowering borrowing costs as early as March. Signs that inflation remained subdued in December would likely support that view, though a sharper-than-expected decline could also stoke fears that recent Fed rate increases are starting to weaken the economy.
Conversely, a report showing that consumer prices are rising again could spark concerns markets may have underestimated how long it could take for the Fed to defeat inflation.
Economists polled by Reuters expect the report to show a monthly +0.2% gain in consumer prices versus a +0.1% rise in November.
(3) CPI prints for Australia, China and Japan also come out.
Policymakers across Australia, China and Japan face critical inflation readings likely to provide a sense of whether they will have more, rather than less work in 2024.
The Reserve Bank of Australia, which is expected to join a rate-cut bandwagon later this year could find some relief, if there is a slowdown in November's inflation.
In contrast, a pick-up in consumer prices in Tokyo, a leading indicator of nationwide inflation trends, could cheer those betting on a Bank of Japan (BOJ) policy pivot. Such expectations sent a battered yen surging 5% versus the dollar in December.
Achieving its 2% inflation target "sustainably" is the pre-condition for BOJ officials to ending negative interest rates.
In China, figures on Friday will give further clarity on whether deflationary pressures continue to mount in the world's second largest economy.
(4) Hopes for a crypto ETF continue to rise.
Bitcoin kicked off the new year as it finished 2023 — with sharp gains after investors bet on the possible approval by U.S. regulators of exchange-traded spot bitcoin funds.
The biggest crypto token topped $45,000 for the first time since April 2022 on bets that such applications will get the nod from the Securities and Exchange Commission soon.
Market players say the SEC's decision may be imminent and could usher in a new wave of capital to crypto. Such hopes helped propel bitcoin in 2023 to yearly gains of more than +155%.
Yet the ever-volatile bitcoin has already trimmed its 2024 gains. Doubts linger, some analysts say, over how much demand will exist for any bitcoin ETF — and whether approval is already priced in.
(5) A Red Sea shipping crisis
Markets have been looking to oil prices for signs the Israel-Hamas dispute will push global inflation higher, but with expectations of heavy supply, oil does not tell the whole story.
As transport groups re-route vessels away from the Red Sea, retailers face the biggest shipping upheaval since COVID-19 stymied the freight industry in 2020.
The result could be Western retailers waiting longer for goods to arrive from China, with shortages pushing up prices, trade analysts say. The British Retail Consortium has said rising costs could reverse a trend of moderating grocery price inflation.
Markets, more focused on relatively moderate oil prices, have so far shown limited concern about Red Sea shipping. But investors would be wise to monitor freight costs for signs that the battle against inflation is not over.
Zacks #1 Rank (STRONG BUY) Stocks
(1) Martin Marietta Materials (MLM - Free Report) ): This is a $486 stock with a market cap of $29.8B in the Building Products – Concretes and Aggregates industry. I see a Zacks Value score of D, a Zacks Growth score of C and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Martin Marietta Materials, Inc. produces and supplies construction aggregates and other heavy building materials, mainly cement, in the United States.
The end uses of the company's aggregates and cement are infrastructure, private residential and private non-residential construction. Railroad, agricultural, utility and environmental industries also use these products.
The company supplies aggregates (crushed stone, sand and gravel) through its network of quarries, mines and distribution yards.
(2) Ryanair (RYAAY - Free Report) : This is a $123 stock with a market cap of $27.6B in the Airline industry. I see a Zacks Value score of C, a Zacks Growth score of A and a Zacks Momentum score of F.
Image Source: Zacks Investment Research
Ryanair Holdings is the parent company of Ryanair Designated Activity Company (formerly known as Ryanair Limited).
Ryanair is an ultra-low fare carrier that offers scheduled-passenger airline service in Ireland, the U.K., Continental Europe, Morocco and Israel. Also, it serves short-haul, point-to-point routes.
(3) Cloudfare (NET - Free Report) : This is a $77 stock with a market cap of $25.6B in the Internet Software industry. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of C.
Image Source: Zacks Investment Research
Headquartered in San Francisco, CA, Cloudflare Inc. is a global cloud services provider that delivers a suite of deeply integrated products, including website and application services solutions, Cloudflare One, developer-based solutions and consumer offerings.
Cloudflare’s website and application security offerings ensure internet properties like websites, applications and application programming interface (APIs) are safe from attack, fast and reliable, while website and application performance offerings enhance conversions and user experiences by reducing churn and accelerating web and mobile performance of the customers.
Key Global Macro
Thursday’s U.S. CPI print for DEC should be the major trader focus.
On Monday, Euro Area retail sales fell -0.3%, though were expected to be up +0.3% m/m in NOV, after printing an upwardly revised +0.4% m/m reading the month prior.
Preliminary Australian retail sales for NOV should be up +1.3% m/m.
On Tuesday, the Euro Area household unemployment rate for NOV should stay at 6.5%.
South Korea’s household unemployment rate for DEC should be 3.0%, higher than the 2.8% prior reading.
On Wednesday, Mainland China’s New Yuan Loans for DEC should be 1225B, versus a 1090B prior print.
On Thursday, Brazil’s consumer inflation rate for DEC should be 4.35% y/y versus a 4.68% y/y prior reading.
Out at 8:30 am ET, the U.S. core CPI should be +4.0% y/y in DEC, versus +4.0% y/y in NOV. The broad CPI for DEC should be +3.0% y/y versus +3.1% y/y in NOV.
Mainland China’s CPI for DEC should be -0.7% y/y, versus a -0.5% y/y NOV print.
On Friday, India’s CPI for DEC should be +5.7% y/y versus a +5.5% y/y NOV print.
Conclusion
Let’s finish with Dec. 29th, 2023 snippets --from Zacks Research Director Sheraz Mian-- on the Q4-23 earnings season:
(1) 2022 Q4 earnings are expected to be down -0.4% on +2.3% higher revenues.
This follows the +3.8% earnings growth reading in the preceding period (Q3-2023) and three back-to-back quarters of declining earnings before that.
(2) Looking ahead, estimates for full-year 2024 have also been coming down. Though, the revisions trend appears to have started improving again lately.
(3) One S&P500 sector whose earnings outlook appears to have notably turned around is the Tech sector.
This sector has a bigger bearing on the aggregate earnings picture than any of the 15 Zacks sectors in the S&P500 index, as it is on track to bring in more than 28% of the index’s total earnings over the coming four-quarter period.
Other sectors whose 2024 earnings estimates also appear to have inched up lately include Retail, Autos, Aerospace and Utilities.
(4) While estimates for all the other sectors are still under pressure, sectors facing the most pressure on estimates include Transportation, Industrial Products and Consumer Discretionary.
Happy trading and investing!
John Blank
Zacks Chief Equity Strategist and Economist