For this Global Week Ahead, I ranked five themes in their order of importance.
Yes. I see the nascent Spanish rebellion as important, Yet, I don’t see it as important as the state of the U.S. economy -- and the already high valuation of major large-cap share indexes.
There’s been very little volatility associated with owning major stocks this year. That may be about to change. When it’s too easy to make money, that is the best time to mark up your worries.
1. October Can Punish Stocks
This is the month to bet on a stock market correction. Research by Renaissance Capital (gratis Reuters) showed that nine of the top 20 daily percentage declines in the DJIA since 1896 landed in October.
That's well above any other month. The next is September, with three.
2. Fed Speaks, Latest Payroll Data Hits
As with any first week of a month, the latest jobs market fundamentals will drive risk markets.
On Friday, the U.S. non-farm payroll report for September is out. Look for data to be similar to August. That was recorded as +156K with a 4.4% unemployment rate.
In last week’s U.S. macro data release, the Fed's favored measure of inflation increased in July at its slowest annual rate since Nov. 2015. The core PCE (personal consumption expenditures) inflation has slowed to +1.3%. This is well below the Fed's +2.0% target.
To help out here, traders get a number of in-person Fed updates this week. Chair Yellen speaks briefly Wednesday. She offers opening remarks at a community bank conference.
The rest of the FOMC speaks later. Governor Powell speaks on Tuesday and Thursday about regulatory reforms and Treasury markets. NY Fed President Bill Dudley speaks on Friday about the monetary policy outlook.
Regional Presidents Kaplan (Monday), Williams, Harker and George (Thursday), and then Bostic, Kaplan and Bullard (Friday) speak last.
3. Spain’s Catalan Region Experiences Political Turmoil
Catalonia’s president signaled. This northern Spanish region containing Barcelona (and bordering France) will declare independence from Spain in the coming days.
More than 2 million Catalan people defied attempts by the central government in Madrid to halt Sunday’s illegal referendum to back independence. More than 800 were injured.
4. President Trump’s Approval Rating Tracks the U.S. Dollar
This year, the U.S. dollar's swoon has moved in lockstep with U.S. President Donald Trump's slipping job approval rating. A modest improvement in his ratings — starting in September — has also been met with a firmer U.S. dollar.
The President and First Lady visit hurricane-wrecked Puerto Rico and the U.S. Virgin Islands on Tuesday.
5. Can Emerging Market Stocks Keep HOT?
After a bruising week for emerging markets, investors will see whether this year's risk-on momentum rally here gets back on track.
Top Zacks #1 Rank (STRONG BUY) Stocks:
A. Toyota Motor (TM - Free Report) : This is the $178 billion market cap global automotive maker, with its key base of operations in Japan. I see a hard-to-find Zacks long-term Zacks VGM score of A here. Ditto for Honda.
Japanese markets are moving up. Macro fundamentals related directly to manufacturing are strengthening in Japan and Asia (all driven by Mainland China). It may be time to rotate into Japanese auto stocks.
B. Micron Tech (MU - Free Report) : This Idaho-based memory chipmaker is on a big trading momentum roll. It may not be over. The long-term Zacks VGM score is still an A.
Semiconductor chip market history looks spooky to many. Bearish analysts are concerned the memory chip cycle is peaking, so the market is not pricing MU stock aggressively. Bullish covering analysts say “this time is different.” Choose your side on that one.
C. Luxoticca Group S.p.a (LUXTY - Free Report) : This maker of high quality sunglasses. It is based in Northern Italy. Watch how the stock performs in the face of the volatile Catalan situation. I see a Zacks #1 Rank and a long-term Zacks VGM score of B.
Will improving GDP growth fundamentals in Europe trump the latest turbulence? Those are the bull and bear camps over in Europe in the week ahead.
Key Global Macro—
For traders — as usual with the start of any month — the dominant macro facts hail from the jobs data. The private ADP payroll report is out on Wednesday. The latest U.S. Federal payroll report is out on Friday.
Here is the chronology of the trading tape, as it relates to macro data & events:
On Monday, the manufacturing PMI index in a final version came in at 56.1 for France and 60.6 for Germany.
For the U.K., the CIPS/Markit manufacturing PMI was 55.9 vs. expectations for 56.7.
The U.S. ISM manufacturing PMI will come out later today. Look for 58.5.
Two big readings will come from Latin America’s biggest economy. The Markit PMI for manufacturing in Brazil (currently at 5.12) and the CNI capacity utilization index in Brazil (currently at 77.5).
Recall, this country is emerging from a recession and major political turbulence.
On Tuesday, the Reserve Bank of Australia (RBA) comes out with its latest overnight policy rate. It is at 1.5% and is not likely to change. There has been no recession in Australia in 35 years.
The Eurozone PPI comes out. It has been 2.0% y/y.
The National Bank of Poland (NBP) issues its base rate. That has been 1.5%.
On Wednesday, the final French and German services PMIs come out. These have been 57.1 and 55.6.
The Composite (Final) PMI for the Eurozone as a whole comes out. That has been 55.6.
The Eurozone’s retail sales data comes out. It has been 2.6% y/y.
The private U.S. ADP employment survey comes out. It has been 237K last month.
On Thursday, the proxy GDP for Chile comes out. Recall, this is a big copper mining country. The last version was +2.8% y/y. The forecast is for +2.5% y/y.
The Fed’s Powell and Dudley speak in NYC.
U.S. initial claims for this week hits. The latest was 272K. That’s a low number.
The Fed’s Williams speaks in St. Louis and the Fed’s Harker and George speak at a workforce conference in Austin, TX.
On Friday, Moody’s rates U.S. sovereign debt.
The U.S. non-farm payroll report for September is out. Look for data to be similar to August. That was recorded as 156K with a 4.4% unemployment rate.
Canada’s unemployment rate comes out. It has been 6.2%.
The Fed’s Dudley, Kaplan, and Bullard speak on monetary policy.