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U.S. CPI Data Resets a Market Narrative: Global Week Ahead
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Before this Global Week Ahead begins, global central banks have started to break away from the pack, as policy rate cuts roll out across Europe.
Meanwhile, borrowing costs in the U.S. may stay ‘higher-for-longer,’ which has been lifting the U.S. dollar’s value.
A key set of U.S. Consumer Price Inflation (CPI) data rests at the heart of the stock and bond trading week’s macro event calendar.
That April CPI data is the deciding factor in the near-term direction for risk markets.
Next is Reuters’ five world market themes, reordered for equity traders—
(1) On Wednesday, April 15th, the U.S. April Consumer Price Inflation (CPI) Data Lands, at 8:30 am ET
Goldilocks is getting a health check, with U.S. inflation data set to show whether consumer prices are finally cooling after a run of unexpected strength.
For months, the balance of resilient growth and easing inflation that some investors dub the "Goldilocks scenario" helped buoy markets — until it was upended by a series of data showing the economy was more robust than expected.
Some relief came earlier this month, when the Federal Reserve assured markets it was still looking to eventually cut rates, and a U.S. employment report showed signs of cooling in the labor market.
Inflation data on May 15th could keep the good vibes going if it shows consumer prices increased at a slower pace. But more evidence of stubborn inflation could renew interest rate worries and reignite market volatility. Economists polled by Reuters project CPI to have gained 0.3% in April month-on-month.
(2) Which Way Will the U.S. Dollar Be Going from Here?
The forex market feels like a one-way street.
Central banks no longer operate like the rate-raising herd of 2022 and 2023, leaving the dollar to batter almost everything else, with the Federal Reserve likely to keep U.S. rates high for some time.
Speculators now hold their largest bullish bet on the dollar against any other major currency in five years.
Currencies bearing low rates get punished extra hard, leaving the Japanese yen and Swiss franc as the biggest laggards, down around 8% each this year.
The net long position in the dollar against other G10 currencies is worth around $33 billion. In January, when markets anticipated at least five U.S. rate cuts in 2024, investors held roughly $7.23 billion in bets against the dollar.
As rate outlook expectations have unraveled, so have those bearish positions. Expect more, not less, dollar strength ahead.
(3) On Tuesday, May 14th, Key U.K. Labor Data Lands. Does the BoE Cut in June?
The Bank of England (BoE) is expected to cut interest rates this year after inflation eased, but remains on alert for pay rises refueling price pressures ahead of fresh labor market data due on May 14th.
Traders see a good chance the BoE policy rate falls in June. But the central bank might need more time and data to be sure that Britain has escaped a wage and price spiral.
Annual pay growth is still running hot, while labor supply is stagnating, with more than a fifth of working-age adults not seeking employment and the number of people registered as long-term sick having hit 2.83 million, the highest since records began in 1993.
(4) On Thursday, May 16th, Japan Produces Q1 Real GDP Growth Figures
Japan may have narrowly avoided a technical recession in Q4-23, but the narrative over the longer-term growth outlook hasn't changed much.
An aging population and weak domestic demand continue to plague the Asian nation, coupled with a weakening yen that's struggling to gain ground, even after Tokyo's latest bouts of suspected intervention.
Thursday's Q1-24 growth figures will reveal whether the Japanese economy began 2024 on a strong footing, especially since the Bank of Japan (BOJ) in March made a landmark exit from negative interest rates, kickstarting a tentative virtuous cycle of rising wages and prices.
But the BOJ's preference to keep monetary policy accommodative for now is unlikely to take the pressure off the yen, as interest rates elsewhere remain at multi-decade highs, in turn squeezing households further as import costs rise.
(5) On Friday, May 17th, Mainland China’s Beleaguered Home Price Data Lands
The negative sentiment towards Mainland China has been turning in recent days, though investors are keeping a close eye on the country's real estate market and what's to become of it.
April home price data on May 17th will be the next barometer of health for the beleaguered sector, which has been engulfed by a debt crisis for about three years now, leaving property developers on the brink of collapse.
The release comes alongside China's retail sales and urban unemployment rate figures due the same day, and on the heels of disappointing May Day spending data.
Comments from policymakers at April's Politburo meeting have primed investors for a wave of stimulus measures from Beijing to boost economic recovery, keeping the market mood buoyant for now.
Chinese stocks have edged away from their February lows, while the China yuan seems to have found a floor.
Zacks #1 Rank (STRONG BUY) Stocks
(1) Kubota (KUBTY - Free Report) : This is a $80 Japanese large cap stock, with a market cap of $18.9B. It is found in the Manufacturing – Farm Equipment industry. I see a Zacks Value score of B, a Zacks Growth score of C and a Zacks Momentum score of C.
Image Source: Zacks Investment Research
Kubota is the world's largest maker of small tractors and Japan's 2nd largest manufacturer of farm equipment.
The company is also Japan's largest producer of ductile iron pipe (for water supply and sewer systems) and its maker of roofing materials.
The company makes engines, construction machinery, industrial castings and machinery, waste recycling plants, and prefab housing and pumps.
It has stakes in several US computer companies, including memory storage makers Maxoptix and Akashic Memories.
(2) Nutanix (NTNX - Free Report) : This is a $67 info tech stock, with a market cap of $16.5B. It is found in the Computer – IT Services industry. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
San Jose, CA-based Nutanix Inc. provides enterprise cloud operating system that combines server, storage, virtualization and networking software into one integrated solution.
Nutanix’s solution can be delivered either as an appliance that is configured to order, or as software only.
The company currently offers two software product families — Acropolis and Prism.
Acropolis includes Distributed Storage Fabric (DSF) that supports a wide variety of enterprise applications and has the capability to operate both virtualized and non-virtualized applications. The solution also includes Application Mobility Fabric (AMF), leading to increasing levels of application placement, conversion and migration across different hypervisors and public clouds. It also has a built-in Acropolis hypervisor (AHV), based on Linux KVM.
Prism helps in automating IT management. The solution enables efficient regulation of enterprise-wide deployments by serving as a central administration point to manage multiple clusters and hypervisors (including VMware ESXi environments) within a datacenter or across multiple sites. Prism is built with HTML5 and can be accessed from any connected device that is HTML5-enabled including smartphones and tablets.
Nutanix generated revenues of $1.86 billion in fiscal 2023. Subscriptions, Non-Portable Software, Hardware and Professional Services accounted for 93%, 2%, 0.1% and 4.9% of revenues, respectively.
The company faces stiff competition from software providers, such as VMware; traditional IT systems vendors, namely Cisco Systems, Dell, Hewlett Packard Enterprise, Hitachi Data Systems, IBM and Lenovo; traditional storage array vendors like NetApp and providers of public cloud infrastructure and services, such as Amazon, Google and Microsoft.
(3) Zebra Technologies (ZBRA - Free Report) : This is a $316 info tech stock, with a market cap of $16.3B. It is found in the Manufacturing – Thermal Products industry. I see a Zacks Value score of F, a Zacks Growth score of F and a Zacks Momentum score of A.
Image Source: Zacks Investment Research
Zebra is a global leader providing Enterprise Asset Intelligence (EAI) solutions in the Automatic Identification and Data Capture (AIDC) industry.
The AIDC market consists of mobile computing, data capture, radio frequency identification devices (RFID), barcode printing, and other workflow automation products and services.
They design, manufacture, and sell a broad range of AIDC products, including: mobile computers, barcode scanners and imagers, RFID readers, specialty printers for barcode labeling and personal identification, real-time location systems (RTLS), related accessories and supplies, such as labels and other consumables, and related software applications.
They also provide a full range of services, including maintenance, technical support, repair, managed and professional services, as well as cloud-based software subscriptions and robotics automation solutions.
Key Global Macro
No argument here: Wednesday’s U.S. CPI data is the global market’s focal point.
On Monday, Canada’s building permits for MAR come out. I see a +9.3% m/m prior reading.
The Fed’s Jefferson and Mester speak.
Japan’s PPI for April comes out. The call is for +0.9% y/y, after a prior +0.8% y/y print.
On Tuesday, the OPEC monthly oil market report comes out.
The upstream U.S. PPI for April lands. The prior broad PPI reading is +2.1% y/y. Ex-food and energy PPI is higher at +2.4% y/y.
On Wednesday, Q1-24 Eurozone GDP growth lands. I see a +0.4% y/y call, following +0.4% y/y the prior quarter. Steady.
Key April 2024 U.S. CPI data lands. Broad CPI should be +3.4% y/y, falling from +3.5% y/y the month prior. Ex- Food & Energy CPI? The prior reading was +3.8% y/y.
U.S. Retail Sales for April also come out. The m/m reading should go up +0.4%, following a strong +0.7% m/m print in March.
The Fed’s Kashkari speaks.
On Thursday, the Australian household unemployment rate comes out. 3.9% is expected, following a 3.8% prior rate.
Spring U.S. building permits for April should be 1.48M, following 1.467M in March. U.S. housing starts for April should be 1.41M, following a 1.32M print in March. Lots of U.S. home builder strength continues to show us.
On Friday, Mainland China’s retail sales for April come out. Bull stock traders could benefit from a higher +3.8% y/y growth in retail sales there, following a lower +3.1% y/y rate in March.
Conclusion
I like to finish up with Zacks latest S&P500 earnings update.
“We consistently flagged signs of improvement in the overall S&P500 earnings revisions trend in recent weeks, with estimates starting to go modestly up.”
“We are seeing this trend for the current period (Q2-24), as well as for full-year 2024 estimates.”
Zacks Research Director Sheraz Mian’s the key earnings points (written May 8th):
(1) Looking at the calendar year picture, total S&P500 earnings are expected to grow by +8.9% this year, after last year’s modest decline.
Exclude the hefty Info Tech sector contribution, whose 2024 earnings are expected to be up +15.9%? Earnings for the rest of the S&P500 index would be up only +6.3%.
(2) Total earnings for the 440 S&P500 members that have reported Q1-24 results are up +5.0% from the same period last year, on +4.2% higher revenues.
78.0% beat EPS estimates. A lower 60.9% beat revenue estimates.
(3) The earnings and revenue growth pace for these 440 S&P500 index members represents a modest acceleration from what we had seen, in other recent periods.
The +5% earnings growth pace improves to +11.9% once the Energy sector and Bristol Myers’s one-time charge are accounted for.
(4) For Q2-24, S&P500 earnings are expected to be up +9.2% from the same period last year on +4.5% higher revenues.
Estimates have been increasing since the start of April, with the current +9.2% earnings growth pace up from +8.7% on April 3rd.
Have an excellent week, trading stocks across these global markets!
Warm Regards,
John Blank, PhD. Zacks Chief Equity Strategist and Economist
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U.S. CPI Data Resets a Market Narrative: Global Week Ahead
Before this Global Week Ahead begins, global central banks have started to break away from the pack, as policy rate cuts roll out across Europe.
Meanwhile, borrowing costs in the U.S. may stay ‘higher-for-longer,’ which has been lifting the U.S. dollar’s value.
A key set of U.S. Consumer Price Inflation (CPI) data rests at the heart of the stock and bond trading week’s macro event calendar.
That April CPI data is the deciding factor in the near-term direction for risk markets.
Next is Reuters’ five world market themes, reordered for equity traders—
(1) On Wednesday, April 15th, the U.S. April Consumer Price Inflation (CPI) Data Lands, at 8:30 am ET
Goldilocks is getting a health check, with U.S. inflation data set to show whether consumer prices are finally cooling after a run of unexpected strength.
For months, the balance of resilient growth and easing inflation that some investors dub the "Goldilocks scenario" helped buoy markets — until it was upended by a series of data showing the economy was more robust than expected.
Some relief came earlier this month, when the Federal Reserve assured markets it was still looking to eventually cut rates, and a U.S. employment report showed signs of cooling in the labor market.
Inflation data on May 15th could keep the good vibes going if it shows consumer prices increased at a slower pace. But more evidence of stubborn inflation could renew interest rate worries and reignite market volatility. Economists polled by Reuters project CPI to have gained 0.3% in April month-on-month.
(2) Which Way Will the U.S. Dollar Be Going from Here?
The forex market feels like a one-way street.
Central banks no longer operate like the rate-raising herd of 2022 and 2023, leaving the dollar to batter almost everything else, with the Federal Reserve likely to keep U.S. rates high for some time.
Speculators now hold their largest bullish bet on the dollar against any other major currency in five years.
Currencies bearing low rates get punished extra hard, leaving the Japanese yen and Swiss franc as the biggest laggards, down around 8% each this year.
The net long position in the dollar against other G10 currencies is worth around $33 billion. In January, when markets anticipated at least five U.S. rate cuts in 2024, investors held roughly $7.23 billion in bets against the dollar.
As rate outlook expectations have unraveled, so have those bearish positions. Expect more, not less, dollar strength ahead.
(3) On Tuesday, May 14th, Key U.K. Labor Data Lands. Does the BoE Cut in June?
The Bank of England (BoE) is expected to cut interest rates this year after inflation eased, but remains on alert for pay rises refueling price pressures ahead of fresh labor market data due on May 14th.
Traders see a good chance the BoE policy rate falls in June. But the central bank might need more time and data to be sure that Britain has escaped a wage and price spiral.
Annual pay growth is still running hot, while labor supply is stagnating, with more than a fifth of working-age adults not seeking employment and the number of people registered as long-term sick having hit 2.83 million, the highest since records began in 1993.
(4) On Thursday, May 16th, Japan Produces Q1 Real GDP Growth Figures
Japan may have narrowly avoided a technical recession in Q4-23, but the narrative over the longer-term growth outlook hasn't changed much.
An aging population and weak domestic demand continue to plague the Asian nation, coupled with a weakening yen that's struggling to gain ground, even after Tokyo's latest bouts of suspected intervention.
Thursday's Q1-24 growth figures will reveal whether the Japanese economy began 2024 on a strong footing, especially since the Bank of Japan (BOJ) in March made a landmark exit from negative interest rates, kickstarting a tentative virtuous cycle of rising wages and prices.
But the BOJ's preference to keep monetary policy accommodative for now is unlikely to take the pressure off the yen, as interest rates elsewhere remain at multi-decade highs, in turn squeezing households further as import costs rise.
(5) On Friday, May 17th, Mainland China’s Beleaguered Home Price Data Lands
The negative sentiment towards Mainland China has been turning in recent days, though investors are keeping a close eye on the country's real estate market and what's to become of it.
April home price data on May 17th will be the next barometer of health for the beleaguered sector, which has been engulfed by a debt crisis for about three years now, leaving property developers on the brink of collapse.
The release comes alongside China's retail sales and urban unemployment rate figures due the same day, and on the heels of disappointing May Day spending data.
Comments from policymakers at April's Politburo meeting have primed investors for a wave of stimulus measures from Beijing to boost economic recovery, keeping the market mood buoyant for now.
Chinese stocks have edged away from their February lows, while the China yuan seems to have found a floor.
Zacks #1 Rank (STRONG BUY) Stocks
(1) Kubota (KUBTY - Free Report) : This is a $80 Japanese large cap stock, with a market cap of $18.9B. It is found in the Manufacturing – Farm Equipment industry. I see a Zacks Value score of B, a Zacks Growth score of C and a Zacks Momentum score of C.
Image Source: Zacks Investment Research
Kubota is the world's largest maker of small tractors and Japan's 2nd largest manufacturer of farm equipment.
The company is also Japan's largest producer of ductile iron pipe (for water supply and sewer systems) and its maker of roofing materials.
The company makes engines, construction machinery, industrial castings and machinery, waste recycling plants, and prefab housing and pumps.
It has stakes in several US computer companies, including memory storage makers Maxoptix and Akashic Memories.
(2) Nutanix (NTNX - Free Report) : This is a $67 info tech stock, with a market cap of $16.5B. It is found in the Computer – IT Services industry. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
San Jose, CA-based Nutanix Inc. provides enterprise cloud operating system that combines server, storage, virtualization and networking software into one integrated solution.
Nutanix’s solution can be delivered either as an appliance that is configured to order, or as software only.
The company currently offers two software product families — Acropolis and Prism.
Acropolis includes Distributed Storage Fabric (DSF) that supports a wide variety of enterprise applications and has the capability to operate both virtualized and non-virtualized applications. The solution also includes Application Mobility Fabric (AMF), leading to increasing levels of application placement, conversion and migration across different hypervisors and public clouds. It also has a built-in Acropolis hypervisor (AHV), based on Linux KVM.
Prism helps in automating IT management. The solution enables efficient regulation of enterprise-wide deployments by serving as a central administration point to manage multiple clusters and hypervisors (including VMware ESXi environments) within a datacenter or across multiple sites. Prism is built with HTML5 and can be accessed from any connected device that is HTML5-enabled including smartphones and tablets.
Nutanix generated revenues of $1.86 billion in fiscal 2023. Subscriptions, Non-Portable Software, Hardware and Professional Services accounted for 93%, 2%, 0.1% and 4.9% of revenues, respectively.
The company faces stiff competition from software providers, such as VMware; traditional IT systems vendors, namely Cisco Systems, Dell, Hewlett Packard Enterprise, Hitachi Data Systems, IBM and Lenovo; traditional storage array vendors like NetApp and providers of public cloud infrastructure and services, such as Amazon, Google and Microsoft.
(3) Zebra Technologies (ZBRA - Free Report) : This is a $316 info tech stock, with a market cap of $16.3B. It is found in the Manufacturing – Thermal Products industry. I see a Zacks Value score of F, a Zacks Growth score of F and a Zacks Momentum score of A.
Image Source: Zacks Investment Research
Zebra is a global leader providing Enterprise Asset Intelligence (EAI) solutions in the Automatic Identification and Data Capture (AIDC) industry.
The AIDC market consists of mobile computing, data capture, radio frequency identification devices (RFID), barcode printing, and other workflow automation products and services.
They design, manufacture, and sell a broad range of AIDC products, including: mobile computers, barcode scanners and imagers, RFID readers, specialty printers for barcode labeling and personal identification, real-time location systems (RTLS), related accessories and supplies, such as labels and other consumables, and related software applications.
They also provide a full range of services, including maintenance, technical support, repair, managed and professional services, as well as cloud-based software subscriptions and robotics automation solutions.
Key Global Macro
No argument here: Wednesday’s U.S. CPI data is the global market’s focal point.
On Monday, Canada’s building permits for MAR come out. I see a +9.3% m/m prior reading.
The Fed’s Jefferson and Mester speak.
Japan’s PPI for April comes out. The call is for +0.9% y/y, after a prior +0.8% y/y print.
On Tuesday, the OPEC monthly oil market report comes out.
The upstream U.S. PPI for April lands. The prior broad PPI reading is +2.1% y/y. Ex-food and energy PPI is higher at +2.4% y/y.
On Wednesday, Q1-24 Eurozone GDP growth lands. I see a +0.4% y/y call, following +0.4% y/y the prior quarter. Steady.
Key April 2024 U.S. CPI data lands. Broad CPI should be +3.4% y/y, falling from +3.5% y/y the month prior. Ex- Food & Energy CPI? The prior reading was +3.8% y/y.
U.S. Retail Sales for April also come out. The m/m reading should go up +0.4%, following a strong +0.7% m/m print in March.
The Fed’s Kashkari speaks.
On Thursday, the Australian household unemployment rate comes out. 3.9% is expected, following a 3.8% prior rate.
Spring U.S. building permits for April should be 1.48M, following 1.467M in March. U.S. housing starts for April should be 1.41M, following a 1.32M print in March. Lots of U.S. home builder strength continues to show us.
On Friday, Mainland China’s retail sales for April come out. Bull stock traders could benefit from a higher +3.8% y/y growth in retail sales there, following a lower +3.1% y/y rate in March.
Conclusion
I like to finish up with Zacks latest S&P500 earnings update.
Zacks Research Director Sheraz Mian’s the key earnings points (written May 8th):
(1) Looking at the calendar year picture, total S&P500 earnings are expected to grow by +8.9% this year, after last year’s modest decline.
Exclude the hefty Info Tech sector contribution, whose 2024 earnings are expected to be up +15.9%? Earnings for the rest of the S&P500 index would be up only +6.3%.
(2) Total earnings for the 440 S&P500 members that have reported Q1-24 results are up +5.0% from the same period last year, on +4.2% higher revenues.
78.0% beat EPS estimates. A lower 60.9% beat revenue estimates.
(3) The earnings and revenue growth pace for these 440 S&P500 index members represents a modest acceleration from what we had seen, in other recent periods.
The +5% earnings growth pace improves to +11.9% once the Energy sector and Bristol Myers’s one-time charge are accounted for.
(4) For Q2-24, S&P500 earnings are expected to be up +9.2% from the same period last year on +4.5% higher revenues.
Estimates have been increasing since the start of April, with the current +9.2% earnings growth pace up from +8.7% on April 3rd.
Have an excellent week, trading stocks across these global markets!
Warm Regards,
John Blank, PhD.
Zacks Chief Equity Strategist and Economist