For the Global Week Ahead, here are five big themes. Reuters says these are likely to dominate the thinking of investors and traders.
(1) Third Quarter of 2017 Ends
It’s the end of the third quarter (Q3). What a remarkable quarter it has been!
Wall Street and world stocks have climbed to record high after record high, chalking up the longest streak of quarterly gains in two decades. At the same time, volatility has remained anchored at the lowest levels in decades. By some measures, the last few days have been the calmest in U.S. stock market history.
Bond markets have also been well behaved, considering many of the world’s major central banks are preparing to shrink their balance sheets. There’s been a little more volatility in FX, with the euro breaking above $1.20 and sterling recovering sharply this month.
What does that mean for the week ahead? Potentially some profit-taking and position squaring as investors lock in what they got during the quarter. If that’s the case, some weakness in stocks, bonds and the euro.
(2) U.K. Pound Moving Higher
Sterling has, with a week to go in Q3, has put in its best quarterly performance against the U.S. dollar since Q2 2015.
The week ending Sept. 9th, when the Bank of England began talking about raising interest rates in what would be its first hike in a decade, was the best for the U.K. pound in eight years.
Late last week, a major speech came on Brexit from U.K. Prime Minister Theresa May. It did not break much new ground for markets. The U.K. pound was slightly lower on the day, raising questions over where the impetus for another move higher in sterling will come from.
(3) Bailouts of Russian Banks
B&N Bank, Russia’s 12th biggest lender, became the latest domino to tumble in the country’s banking sector. Markets will be on alert for hints of more trouble.
B&N’s bailout request came three weeks after the rescue of Otkritie Bank. While earlier, licenses were revoked at Yugra bank and Tatfondbank.
Investors reckon more banks will fail, stemming from Western sanctions and unbridled expansion before that. That means Russian financials’ shares, down -12% this year, may see little respite. Broader Russian shares have lost -8%. Bonds of afflicted banks have fallen heavily.
The central bank will sell bonds and hold deposit auctions to finance the rescue. But if the sums are massive, it could fuel inflation — a setback in Russia’s battle against price growth. That would be bad news for the rouble and Russia’s local bonds, which have so far easily withstood the bank malaise.
(4) Asian Policy Rates Stay Attractive
Low inflation is a global pandemic. That also keeps real interest rates in Asia attractive.
It used to be that when the Federal Reserve raised rates, Asia’s emerging economies would follow. With the U.S. central bank announcing the final stage of its exit from unconventional policies, policymakers are watching for any evidence of risk aversion.
For the moment, though, there are no signs of outflows from the region and there is little pressure to compete for funds with higher rates. In fact, India and Indonesia cut rates in August and could even have room to cut again – perhaps even joined by Thailand. The Thai central bank holds a policy meeting on Sept. 27th.
(5) Equifax and Bitcoin
Equifax and bitcoin have been much on investors’ minds this month.
Fallout from Equifax’s massive data breach, which compromised the social security numbers and other personal information of as many as 143 million Americans, wiped out more than one-third of the company’s market value, sending its shares to a more than 2-1/2-year low.
Meanwhile, the price of a bitcoin declined to about $3,000 from a September peak of about $5,100, as Chinese authorities said they would ban trading of the cryptocurrency in their country.
Bitcoin has bounced back above $4,000. But Equifax shares, which fell as low as $89.59 from $142.72 before the scandal broke, have rebounded only to about $96.
If Equifax shares were priced in bitcoin, they would be worth just 2 cents each. So, as investors enter the final quarter of the year, will Equifax or bitcoin be at the top of manager’s buy-and-hold list?
Top Zack #1 Rank (STRONG BUY) Stocks
(1) NVIDIA (NVDA - Free Report) : This is the darling of Artificial Intelligence semiconductor chips. Incredibly, it is a $107 billion market-cap stock. The long-term Zacks VGM score is a poor D. Momentum chasers are raising this stock to new heights.
(2) Daimler (DDAIF - Free Report) : This is the major German auto and truck maker. With the German election in the rear view mirror, keep an eye on this stock. The stock has an $87 billion market cap (smaller than NVIDIA!). The long-term Zacks VGM score is B, showing much more attractiveness.
(3) China Telecom (CHA - Free Report) : This is the major wireline telco in Mainland China. The long-term Zacks VGM score is A. The market cap is $40 billion here, much smaller than both Daimler and NVIDIA. ??????Maybe it’s time to buy Mainland China stocks?
Key Global Macro—
This is a week full of central bank speeches.
On Tuesday, Chair Yellen speaks at a major conference in the USA.
On Wednesday, a bunch of Fed regional speakers (4 to be exact) hit the newswires in the USA.
On Thursday, and Friday, there is a BoE gathering on Thursday and Friday. This has attracted another group of top central bankers.
Also on Thursday, Banxico (the central bank of Mexico) is expected to keep its monetary policy rate on hold at 7.0%.
On Monday, after Germany’s Prime Minister won re-election, the German IFO indexes came out. Business Climate was 115.2 vs. a 115.9 prior. Current Conditions was 123.6 vs. a prior 124.7. Expectations was 107.4 vs. 1 107.8 prior. All of these are worse than before.
The ECB’s Draghi speaks in Brussels.
On Tuesday, the BoJ releases its latest meeting minutes.
The Fed’s Yellen speaks at the NABE (National Association for Business Economists) conference in Ohio. This is the major annual conference for business economists in the USA.
On Wednesday, the Fed’s Kashkari, Brainerd, Bullard and Rosengren speak in the USA.
On Thursday, The Eurozone’s Business Climate, Consumer Sentiment, Economic Confidence and Industrial Sentiment indexes come out. The prior’s are 1.09, -1.2, 111.9, and 5.1.
The German CPI inflation rate should be out. The prior was 1.8%. The more widely followed HICP inflation rate was 1.8%, too.
U.S. initial claims should remain low at 259K.
The overnight rate in Mexico comes out. It should stay at 7.0%.
Japan’s unemployment rate is 2.8%.
The Fed’s George and Fischer speak in London.
The RBA’s (Reserve Bank of Australia) Debelle speaks at BoE conference in London.
The BoJ’s head Kuroda speaks. The BoE’s Carney speaks.
On Friday, the smaller private company Caixin China manufacturing PMI comes out. Looks for 51.5 after 51.6 in the prior month.
The U.K.’s final GDP growth rate should be +1.7% y/y.
The Eurozone’s HICP inflation rate was 1.5%. A fresh reading comes out.
The IMF’s LaGarde speaks in London.