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Global Week Ahead: Key Inflation Data Insight for Interest Rate Moves

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Greetings, Zacks Equity Strategist Shaun Pruitt here filling in for John Blank.

In the Global Week Ahead, markets will be awaiting Personal Consumption Expenditures (PCE) data in the U.S., Tokyo’s CPI index, and preliminary June data from Eurozone economies.

Notably, these readings will help assess how quickly global interest rate moves will likely come for the major economies.

Meanwhile, central bank meetings in emerging markets and the run-up to elections in Britain and France will be of interest concerning global economic and political policies as well.

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

(1) Monitoring the Global Easing Cycle

A push by many emerging market central banks to front run a global easing cycle has lost momentum as the prospect of near-term Fed rate cuts fades and King Dollar weighs on many a currency.

Mexico's central bank is expected to keep rates on hold on Thursday. It's grappling with inflation ticking up and election-induced peso volatility after a surprise strong showing of the ruling party coalition in a June 2 ballot that spooked investors.

Policymakers in the Philippines — meeting the same day — are set to leave rates at 17-year highs, having flagged their restrictive policy settings as appropriate.

And Turkey — a reluctant late joiner to the hiking cycle — is seen sticking with its benchmark rate at 50%, as policymakers still feel the sting of inflation which stood at an eye-watering 75% in May.

(2) On Friday, markets await PCE price index data in the U.S.

That long-awaited slowdown in U.S. inflation has been hard to come by, but investors are hopeful — perhaps more so than the Fed officials, who are anticipating just one rate cut this year.

Friday's key inflation gauge, the Personal Consumption Expenditures (PCE) price index, should show whether the easing inflation trend is in place.

But there's reason for caution.

Recent PCE readings have not always conformed to expectations. The most recent, reported on May 31, showed U.S. inflation unexpectedly tracking sideways in April.

Another such reading on June 28 could undercut the case for those who believe rate cuts are coming anytime soon. Unlike the Fed, markets are holding out for almost two rate cuts this year.

(3) Also on tap Friday: Eurozone June inflation data

Eurozone June inflation data trickles in from Friday with flash prints for France, Italy and Spain.

The data will set the tone for a Eurozone-wide print on July 2, key for traders trying to gauge how many times the European Central Bank (ECB) will cut rates this year.

The ECB cut rates on June 6, but still strong domestic inflation and wages have raised question marks on how many more will follow.

Traders expect one more cut and a roughly 64% chance of a second by year-end, down from nearly 80% before the June meeting.

Any upside surprise would sour the mood for investors grappling with fresh political uncertainty after French President Emmanuel Macron called a first round French election on June 30.

(4) Mixed signals from Japan

The Bank of Japan (BOJ) has kept the door open to a July rate hike. Markets are not convinced and assign less than 1-in-3 odds to a quarter-point increase.

A big reason for that is the BOJ has already said it will also outline quantitative tightening next month. The argument goes that doing too much at once risks roiling bond markets.

Of course, the BOJ — like everyone else — is data-dependent. And the data thus far isn't exactly exerting pressure to tighten. Weak consumer spending is a particular worry, and demand-driven inflation has cooled for nine straight months.

Some key macro readings in coming days will help shed light on the outlook, with retail sales data due Thursday and Tokyo CPI a day later. The BOJ also releases the minutes of its June meeting on Monday.

(5) Elections in Britain and France are crucial to Forex (FX) Trading

It's funny how quickly times change. While Britain has been a hot spot for political instability for some time, the Eurozone has been relatively calm.

Yet, it's the snap French parliamentary election that has markets fretting that a majority for the far-right could mean more spending, hurting France's already frail fiscal position.

Traders have pushed the euro to one-month lows; further weakness could be in store in the next few days.

Sterling, meanwhile, is benefiting from expectations that a big win for the opposition Labour majority in Britain's July 4 election will bring stability.

It's the best performing major currency versus the dollar so far this year and has hit almost two-year highs versus the euro.

Ironically, concern that a Liz Truss-style episode, when Britain's plans for unfunded tax cuts in 2022 roiled markets, could be repeated in France helps explain jitters towards the euro. After all, that episode sunk the pound to record lows.

Top Zacks Rank #1 (STRONG BUY) Stocks

My choices for this week are two U.S. stocks with industry leadership within the auto sector and a large European Bank.

(1) Intesa Sanpaolo (ISNPY - Free Report) : This is a $22 share price stock, operating in the Banks-Foreign Industry, with a market cap of $68.26B. I see a Zacks Value score of C, a Zacks Growth score of D, and a Zacks Momentum score of F.

Zacks Investment Research
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Intesa Sanpaolo is a new banking group resulting from the merger between Banca Intesa and Sanpaolo IMI. It has leadership in the Italian market and a strong international presence focused on Central-Eastern Europe and the Mediterranean basin.

The new group brings together two major Italian banks with shared values and improves their growth opportunities as well as enabling enhanced service for retail customers, significant support for the development of business customers, and an important contribution to growth in all the countries where it operates.

Intesa Sanpaolo intends to become a benchmark for the creation of value in the European banking sector.

(2) Ford Motor (F - Free Report) : This is a $11 share price stock, operating in the Automotive-Domestic Industry, with a market cap of $47.67B. I see a Zacks Value score of A, a Zacks Growth score of D and a Zacks Momentum score of D.

Zacks Investment Research
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Ford is one of the leading automakers in the world. It manufactures, markets and services cars, trucks, sport utility vehicles, electrified vehicles and Lincoln luxury vehicles.

Effective 2023, Ford came up with a new operating model and reporting structure. As a result of this change, the business has the following segments: Ford Blue, Ford Model E and Ford Pro (combined, replacing the previous Automotive segment), Ford Next (previously the Mobility segment) and Ford Credit.

Together, Ford Blue, Ford Model E and Ford Pro produced $165.9 billion in automotive revenues in 2023 while The Ford Next segment primarily encompasses costs and investments related to emerging business initiatives. The Ford Credit segment deals with vehicle-related financing and leasing activities.

(3) Cummins (CMI - Free Report) : This is a $276 share price stock, operating in the Automotive-Internal Combustion Engines industry, with a market cap of $37.88B. I see a Zacks Value score of C, a Zacks Growth score of C and a Zacks Momentum score of C.

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Cummins is a leading global designer, manufacturer, and distributor of diesel and natural gas engines and powertrain-related component products.

Powertrain components include fuel systems, turbochargers, transmissions, batteries and electrified power systems among others.

The company offers products to original equipment manufacturers (OEMs), distributors, and dealers through a network of roughly 600 company-owned and independent distributor facilities in over 9,000 dealer locations in more than 190 countries and territories.

Key Global Macro

Quite a few speeches from several Fed Governors are in store this week along with key economic data.

On Monday, Fed Governor Christopher Walker speaks in Rome.

On Tuesday, Speeches from Fed Governors Michelle Bowman (in London) and Lisa Cook along with S&P Case-Shiller Home Price Index data and the latest Consumer Confidence report.

On Wednesday, New Home Sales are expected to reflect an increase of over 2% to 650,000.

On Thursday, Initial Jobless Claims are expected to have slightly increased to 240,000 with the revised GDP report still expected to reflect 1.3% growth while durable goods and pending home sales data are on tap as well.

On Friday, the much-awaited PCE and Core PCE index data arrives and Fed governor Michelle Bowman speaks again.


Let’s conclude with some updated key points from Zacks Research Director Sheraz Mian as the Q2 earnings season gets underway:

(1) The current expectation is that Q2 earnings for the S&P index will be up +8.6% from the same period last year on +4.6% higher revenues. This would follow the +6.7% earnings growth on +3.2% revenue gains in 2024 Q1.

(2) As we have consistently flagged in our commentaries, the revisions trend for 2024 Q2 and full-year 2024 has been very favorable lately.

(3) The improving earnings outlook for the Energy sector has been a major contributor to this favorable revisions trend at the index level. But the Energy sector isn’t the only sector that has enjoyed positive estimate revisions since the start of April.

(4) Other sectors enjoying positive estimate revisions include Transportation, Utilities, Tech and Autos. On the negative side, estimates have been cut for 11 of the 16 Zacks sectors, with notable declines in Industrial Products, Aerospace, Consumer Staples, Conglomerates, Construction and others.

(5) Embedded in current Q2 earnings and revenue estimates is a steady improvement in margins, continuing the positive trend that has been in place since 2023 Q3.

(6) For 2024 Q2, net margins are expected to be above the year-earlier level for 9 of the 16 Zacks sectors, with the biggest gains at Tech, Medical, Finance, Consumer Discretionary and others.

(7) On the negative side, margins are expected to be below the year-earlier level for 7 of the 16 Zacks sectors, with major pressure at Basic Materials, Autos, Transportation, and other sectors.

Have a great week of trading and investing!

Kind Regards,

Shaun Pruitt

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