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Global Week Ahead: Currency Headwinds and U.S. Jobs on Deck
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In the Global Week Ahead, inflationary data from Europe and the U.S. jobs report will be a key focus for bond and stock traders alike.
Meanwhile, global markets will also be keeping an eye on central banks in Asia, as a stronger U.S. dollar continues to weaken Asian currencies.
The U.S. trade balance will also be of interest, along with PMI numbers.
Next are Reuters’ five world market themes, reordered for equity traders:
(1) Global Market Scope on Currency Headwinds in Asia
Monetary authorities in Japan and China are on high alert as their currencies weaken past levels that they've been defending for months, largely thanks to the resurgent dollar.
With the yen faltering towards the 152 per dollar level and the yuan struggling to break above the stronger side of 7.2 per dollar, officials have stepped up efforts to stem any further depreciation.
In Japan, that means verbal warnings, while in China it has been state banks buying yuan and selling dollars.
Given how much the two big Asian currencies have fallen, there's a growing school of thought that Beijing could have grown more tolerant of a weak yuan to maintain its competitive edge against the yen.
It's hard to say for sure, and what comes next for both is as much of a mystery. The answers lie in Tokyo and Beijing.
(2) Monitoring a “Soft Landing” and Strong U.S. Dollar
The dawn of Q2 is different from the first quarter. In January, markets priced in almost six rate cuts from the Federal Reserve this year — a total of nearly 150 basis points. Now, just three are baked in.
Confidence in a soft landing has ignited an "everything rally" that has swept stocks, gold and cryptocurrencies to record highs.
The dollar, meanwhile, is riding high against almost every major currency, pushing central banks, including those of Japan, China and India, to intervene — or consider intervening — to bolster their currencies.
With the shift in the global interest-rate cycle, low-yielding assets are out and everything with a whiff of yield is in. The coming quarter will be the ultimate litmus of whether this view is right.
(3) On Friday, U.S. Jobs Report to Test Market Sentiment
The April 5 U.S. jobs report will test investor confidence that the economy will be able to avoid a recession, even as inflation cools off.
Non-farm payrolls are expected to have climbed by 200,000 in March, according to economists polled by Reuters. That would be a step down from the 275,000 jobs added in February.
Hopes for a "soft landing" for the U.S. economy appeared to grow after the Fed at its March meeting backed its view of three rate cuts this year while raising its economic growth estimate.
(4) ECB Eyeing Inflation for June Rate Cut
Markets are certain the ECB will likely cut rates by a quarter point come June. Yet there's some doubt as to whether big central banks will be able to ease policy as much as anticipated overall.
So, while the ECB has more or less pre-committed to a June cut, Wednesday's flash March inflation number could be telling for the rate outlook.
Spain's consumer price index rose 3.2% in March from a year earlier, in line with economists' forecasts but up from 2.8% in February, preliminary data showed this week.
Inflation needs to fall further to allow the ECB to deliver a summer rate cut, making the next three inflation prints key for markets (and the ECB).
If inflation surprises higher, rate cut bets will be pushed out further still. Don't rule that out.
(5) Monetary Policy Action Still Needed for Chinese Equity Rebound
A strong rebound in China's economy has been a long time coming, and investors aren't pinning much hope on the latest set of Purchasing Managers' Index (PMI) figures to paint a different picture.
Expectations are for the Caixin manufacturing PMI to show a slight expansion, likely continuing its divergence with the official reading — overall offering a mixed outlook for the world's No.2 economy.
While upbeat industrial profits may have offered some relief, a property crisis and various domestic headwinds are keeping foreign money on the sidelines.
Also in an attempt to restore business confidence, President Xi Jinping met American business leaders in Beijing, though there was little detail of what was discussed.
Still, investors want China to walk the talk. Calls for further monetary and fiscal stimulus are still met with much reticence, and that's hurting stocks and the yuan.
Zacks Rank #1 (Strong Buy) Stocks
(1) HCA Healthcare (HCA - Free Report) : This is a $333 stock in the Medical-Hospital industry. The market cap is $88.21B. I see a Zacks Value score of A, a Zacks Growth score of B and a Zacks Momentum score of B.
Image Source: Zacks Investment Research
HCA Healthcare (formerly known as HCA Holdings) is the largest non-governmental operator of acute care hospitals in the U.S. and is headquartered in Nashville, TN.
The company operates 186 hospitals and approximately 2,400 ambulatory sites of care, including surgery centers, freestanding emergency rooms, urgent care centers, and physician clinics, in 20 states and the United Kingdom.
It operates in two geographically organized groups, the National and American Groups. HCA generated revenues of $65 billion in 2023.
The National Group (accounted for 27.9% of the overall 2023 revenues) had 57 hospitals located in states like Alaska, California, Idaho, Indiana, Kentucky, Nevada, New Hampshire, North Carolina, Tennessee, Utah, and Virginia.
The American Group (34.4% of revenue) has 60 hospitals in states like Colorado, Central Kansas, Louisiana and Texas.
The Atlantic Group (32.6%) included 62 hospitals located in Florida, Georgia, Northern Kansas, Missouri, and South Carolina. The company also operates seven hospitals in England that are included in the Corporate and Other group (5.2%).
(2) PDD Holdings Inc. (PDD - Free Report) : This is a $116 stock in the Internet-Commerce industry. The market cap is $153.5B. I see a Zacks Value score of B, a Zacks Growth score of A and a Zacks Momentum score of A.
Image Source: Zacks Investment Research
PDD Holdings plc (formerly known as Pinduoduo) operates an e-commerce platform in China and is headquartered in Shanghai.
Its operations are primarily run through Tencent’s (TCEHY - Free Report) WeChat app which has over a billion active users.
Pindoudou allows users to participate in group-buying deals that separate its e-commerce offerings from competitors such as Alibaba (BABA - Free Report) and JD.com (JD - Free Report) .
(3) Toyota Motor (TM - Free Report) : This is a $251 stock in the Automotive-Foreign industry. The market cap is $340.98B. I see a Zacks Value score of A, a Zacks Growth score of F and a Zacks Momentum score of B.
Image Source: Zacks Investment Research
Toyota Motor Corporation is one of the leading automakers in the world in terms of sales and production.
The track record of selling some of the most dependable and durable cars on the market has built Toyota Motor’s brand and loyal customer base.
This has allowed the Japanese automaker to go from selling cheaper-than-average cars for most of the 1980s and '90s to offering electrified vehicles that can have a price tag of up to $60,000.
Nowadays, Toyota Motor is thought to be the second highest-valued car brand among all global automakers next to Tesla (TSLA - Free Report) , which has a market cap of $559.85B.
Key Global Macro
Fed Chair Jerome Powell's speech on Wednesday and Friday’s unemployment rate data are top market-moving events with more PMI data coming as well.
On Monday, U.S. manufacturing PMI is expected to come in flat at 52.5.
On Tuesday, U.S. job openings are expected at 8.8 million, slightly down from 8.9 million in the prior month.
On Wednesday, S&P U.S. Services PMI is expected to come in flat at 51.7 Fed Chair Jerome Powell speaks in the afternoon.
On Thursday, U.S. initial jobless claims are expected to remain at 210,000. Additionally, the U.S. trade balance is anticipated to remain unchanged at -$67.4 B.
On Friday, the U.S. Unemployment rate is on tap and projected to slightly dip to 3.8% versus 3.9% in the prior month.
Conclusion
Here are Zacks Research Director Sheraz Mian’s updated key points for the Q1 earnings picture:
(1) Total S&P 500 earnings for the first quarter of 2024 are expected to be up +2.5% from the same period last year on +3.5% higher revenues.
This follows the +6.7% earnings growth on +3.9% higher revenues.
(2) The Tech sector remained a key growth driver in Q1 2024.
Had it not been for the robust Tech sector earnings growth, total earnings for the rest of the index would be modestly in negative territory.
(3) Estimates for Q1 2024 have come down since the quarter began.
Still, the magnitude of cuts compared favorably to what we have experienced in other recent periods.
(4) Half of the 16 Zacks sectors are expected to enjoy positive earnings growth in Q1, with the Tech (earnings growth of +19.6%), Retail (+12.3%), Cons. Discretionary (+11.0%) and Utilities (+7.3%) sectors enjoying notable year-over-year growth.
Have an excellent trading week!
John Blank, PhD. Zacks Chief Equity Strategist and Economist
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Global Week Ahead: Currency Headwinds and U.S. Jobs on Deck
In the Global Week Ahead, inflationary data from Europe and the U.S. jobs report will be a key focus for bond and stock traders alike.
Meanwhile, global markets will also be keeping an eye on central banks in Asia, as a stronger U.S. dollar continues to weaken Asian currencies.
The U.S. trade balance will also be of interest, along with PMI numbers.
Next are Reuters’ five world market themes, reordered for equity traders:
(1) Global Market Scope on Currency Headwinds in Asia
Monetary authorities in Japan and China are on high alert as their currencies weaken past levels that they've been defending for months, largely thanks to the resurgent dollar.
With the yen faltering towards the 152 per dollar level and the yuan struggling to break above the stronger side of 7.2 per dollar, officials have stepped up efforts to stem any further depreciation.
In Japan, that means verbal warnings, while in China it has been state banks buying yuan and selling dollars.
Given how much the two big Asian currencies have fallen, there's a growing school of thought that Beijing could have grown more tolerant of a weak yuan to maintain its competitive edge against the yen.
It's hard to say for sure, and what comes next for both is as much of a mystery. The answers lie in Tokyo and Beijing.
(2) Monitoring a “Soft Landing” and Strong U.S. Dollar
The dawn of Q2 is different from the first quarter. In January, markets priced in almost six rate cuts from the Federal Reserve this year — a total of nearly 150 basis points. Now, just three are baked in.
Confidence in a soft landing has ignited an "everything rally" that has swept stocks, gold and cryptocurrencies to record highs.
The dollar, meanwhile, is riding high against almost every major currency, pushing central banks, including those of Japan, China and India, to intervene — or consider intervening — to bolster their currencies.
With the shift in the global interest-rate cycle, low-yielding assets are out and everything with a whiff of yield is in. The coming quarter will be the ultimate litmus of whether this view is right.
(3) On Friday, U.S. Jobs Report to Test Market Sentiment
The April 5 U.S. jobs report will test investor confidence that the economy will be able to avoid a recession, even as inflation cools off.
Non-farm payrolls are expected to have climbed by 200,000 in March, according to economists polled by Reuters. That would be a step down from the 275,000 jobs added in February.
Hopes for a "soft landing" for the U.S. economy appeared to grow after the Fed at its March meeting backed its view of three rate cuts this year while raising its economic growth estimate.
(4) ECB Eyeing Inflation for June Rate Cut
Markets are certain the ECB will likely cut rates by a quarter point come June. Yet there's some doubt as to whether big central banks will be able to ease policy as much as anticipated overall.
So, while the ECB has more or less pre-committed to a June cut, Wednesday's flash March inflation number could be telling for the rate outlook.
Spain's consumer price index rose 3.2% in March from a year earlier, in line with economists' forecasts but up from 2.8% in February, preliminary data showed this week.
Inflation needs to fall further to allow the ECB to deliver a summer rate cut, making the next three inflation prints key for markets (and the ECB).
If inflation surprises higher, rate cut bets will be pushed out further still. Don't rule that out.
(5) Monetary Policy Action Still Needed for Chinese Equity Rebound
A strong rebound in China's economy has been a long time coming, and investors aren't pinning much hope on the latest set of Purchasing Managers' Index (PMI) figures to paint a different picture.
Expectations are for the Caixin manufacturing PMI to show a slight expansion, likely continuing its divergence with the official reading — overall offering a mixed outlook for the world's No.2 economy.
While upbeat industrial profits may have offered some relief, a property crisis and various domestic headwinds are keeping foreign money on the sidelines.
Also in an attempt to restore business confidence, President Xi Jinping met American business leaders in Beijing, though there was little detail of what was discussed.
Still, investors want China to walk the talk. Calls for further monetary and fiscal stimulus are still met with much reticence, and that's hurting stocks and the yuan.
Zacks Rank #1 (Strong Buy) Stocks
(1) HCA Healthcare (HCA - Free Report) : This is a $333 stock in the Medical-Hospital industry. The market cap is $88.21B. I see a Zacks Value score of A, a Zacks Growth score of B and a Zacks Momentum score of B.
Image Source: Zacks Investment Research
HCA Healthcare (formerly known as HCA Holdings) is the largest non-governmental operator of acute care hospitals in the U.S. and is headquartered in Nashville, TN.
The company operates 186 hospitals and approximately 2,400 ambulatory sites of care, including surgery centers, freestanding emergency rooms, urgent care centers, and physician clinics, in 20 states and the United Kingdom.
It operates in two geographically organized groups, the National and American Groups. HCA generated revenues of $65 billion in 2023.
The National Group (accounted for 27.9% of the overall 2023 revenues) had 57 hospitals located in states like Alaska, California, Idaho, Indiana, Kentucky, Nevada, New Hampshire, North Carolina, Tennessee, Utah, and Virginia.
The American Group (34.4% of revenue) has 60 hospitals in states like Colorado, Central Kansas, Louisiana and Texas.
The Atlantic Group (32.6%) included 62 hospitals located in Florida, Georgia, Northern Kansas, Missouri, and South Carolina. The company also operates seven hospitals in England that are included in the Corporate and Other group (5.2%).
(2) PDD Holdings Inc. (PDD - Free Report) : This is a $116 stock in the Internet-Commerce industry. The market cap is $153.5B. I see a Zacks Value score of B, a Zacks Growth score of A and a Zacks Momentum score of A.
Image Source: Zacks Investment Research
PDD Holdings plc (formerly known as Pinduoduo) operates an e-commerce platform in China and is headquartered in Shanghai.
Its operations are primarily run through Tencent’s (TCEHY - Free Report) WeChat app which has over a billion active users.
Pindoudou allows users to participate in group-buying deals that separate its e-commerce offerings from competitors such as Alibaba (BABA - Free Report) and JD.com (JD - Free Report) .
(3) Toyota Motor (TM - Free Report) : This is a $251 stock in the Automotive-Foreign industry. The market cap is $340.98B. I see a Zacks Value score of A, a Zacks Growth score of F and a Zacks Momentum score of B.
Image Source: Zacks Investment Research
Toyota Motor Corporation is one of the leading automakers in the world in terms of sales and production.
The track record of selling some of the most dependable and durable cars on the market has built Toyota Motor’s brand and loyal customer base.
This has allowed the Japanese automaker to go from selling cheaper-than-average cars for most of the 1980s and '90s to offering electrified vehicles that can have a price tag of up to $60,000.
Nowadays, Toyota Motor is thought to be the second highest-valued car brand among all global automakers next to Tesla (TSLA - Free Report) , which has a market cap of $559.85B.
Key Global Macro
Fed Chair Jerome Powell's speech on Wednesday and Friday’s unemployment rate data are top market-moving events with more PMI data coming as well.
On Monday, U.S. manufacturing PMI is expected to come in flat at 52.5.
On Tuesday, U.S. job openings are expected at 8.8 million, slightly down from 8.9 million in the prior month.
On Wednesday, S&P U.S. Services PMI is expected to come in flat at 51.7
Fed Chair Jerome Powell speaks in the afternoon.
On Thursday, U.S. initial jobless claims are expected to remain at 210,000. Additionally, the U.S. trade balance is anticipated to remain unchanged at -$67.4 B.
On Friday, the U.S. Unemployment rate is on tap and projected to slightly dip to 3.8% versus 3.9% in the prior month.
Conclusion
Here are Zacks Research Director Sheraz Mian’s updated key points for the Q1 earnings picture:
(1) Total S&P 500 earnings for the first quarter of 2024 are expected to be up +2.5% from the same period last year on +3.5% higher revenues.
This follows the +6.7% earnings growth on +3.9% higher revenues.
(2) The Tech sector remained a key growth driver in Q1 2024.
Had it not been for the robust Tech sector earnings growth, total earnings for the rest of the index would be modestly in negative territory.
(3) Estimates for Q1 2024 have come down since the quarter began.
Still, the magnitude of cuts compared favorably to what we have experienced in other recent periods.
(4) Half of the 16 Zacks sectors are expected to enjoy positive earnings growth in Q1, with the Tech (earnings growth of +19.6%), Retail (+12.3%), Cons. Discretionary (+11.0%) and Utilities (+7.3%) sectors enjoying notable year-over-year growth.
Have an excellent trading week!
John Blank, PhD.
Zacks Chief Equity Strategist and Economist