For Immediate Release
Chicago, IL – March 13, 2018 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Express Scripts (ESRX - Free Report) , Nissan Motor (NSANY - Free Report) and HCA Holdings (HCA - Free Report) .
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Monday’s Analyst Blog:
Here Comes the CPI: Global Week Ahead
For this Global Week Ahead, let’s rank five world market themes put out by Reuters in London.
To start, I thought the latest five themes showed no compelling events.
In lieu of that, what is there to watch most closely?
That falls to a more subtle variety of factors – a possible inflation surprise, tariff fallout, ECB talk and FX volatility.
Inside the USA, there are two key matters. First, traders should watch out for any change in U.S. consumer inflation on Tuesday. This reading may cause the biggest reaction in stock markets this week. Second, traders should watch out for U.S. tariff fallout. That can also introduce downside pressures.
Outside the USA, watch out for Mario Draghi speaking on monetary policy and watch two currencies — the U.K. pound and the Hong Kong dollar.
Below, I list the five themes in order of importance.
(1) Watch the markets when U.S. Consumer Inflation hits on Tuesday
Wall Street is demonstrating a heightened sensitivity to any sign of rising prices, worried it might result in more aggressive interest rate hikes by the Fed. So U.S. consumer price data for February will be closely watched on Tuesday.
It’s worth remembering that recent stock market tumbles kicked off when January’s jobs data stoked inflation fears by reporting the biggest wage gain in more than 8-1/2 years. February’s employment report released on Friday showed the strongest job growth in more than 1-1/2 years, but a slowdown in wage gains.
U.S. CPI rose 2.1 percent year-on-year in January, and a punchy 0.5 percent month-on-month. Stock markets could again come under pressure if the February data show inflationary pressures are building, with investors moving toward pricing four Fed hikes this year rather than three.
(2) Watch out for U.S. Tariff internal friction and external fallout
It’s said a war has no winners. That certainly applies to trade wars. In the United States, initiator of the latest battle, big trade and budget deficits make the dollar vulnerable, as does the fact that the Fed (unlike its European and Japanese counterparts) can cut interest rates if things get too nasty. S&P500 companies earn half their profits overseas and will likely suffer from any outbreak of trade hostilities.
But others may be harder hit. Many reckon the dollar will decline less than during the 2002 steel wars — its current account gap is smaller and growth is stronger.
What about others? The currencies of small, open, developed economies such as Canada, New Zealand and Australia will fall, while emerging markets will suffer if global economic and trade growth slows.
Metals tariffs alone won’t much dent China, South Korea, Taiwan or India — steel exports to the United States comprise 0.2 percent of Korea’s GDP for instance. But an escalation to other sectors will hurt, first via equity outflows that then feed into currencies, especially if the dollar firms.
The markets of trade-reliant countries, such as Korea and Taiwan, should be hurt more than domestic-focused ones such as India or Brazil.
(3) Watch out for any cues on ECB Monetary Policy Normalization
Central banks’ journey back to something resembling policy normalization went up a gear last week when the ECB dropped its pledge to increase QE if needed.
Mario Draghi soothed any market concerns in his subsequent press conference, stressing that policy will remain super-loose. This was enough to push the euro, bond yields and bond spreads back down again.
But despite Draghi’s ‘softly softly’ approach, it looks like the beginning of the end of the ECB’s post-crisis measures is in sight. The question for markets now is how quickly or slowly the ECB moves.
On the other hand, Bank of Japan governor Haruhiko Kuroda quashed creeping speculation the BOJ could tighten policy soon, signaling his readiness to ramp up stimulus if need be.
Draghi and several other ECB officials are scheduled to speak this week, so there will be further guidance on the pace of change ahead.
There are no speeches from Fed officials scheduled this week, while Jerome Powell heads his first policy meeting as Fed Chair in the following week.
(4) Watch the U.K. Pound: Brexit news is an underlying driver
Sterling started 2018 with its best monthly performance against the dollar since 2009. But renewed uncertainty about whether Britain and the European Union can agree on their future trading relationship has undermined the pound’s rally in recent weeks, despite a more hawkish central bank.
Next week could prove crucial for investors unsure how to trade the pound, given the relative resilience of the UK economy and a stream of negative Brexit headlines.
UK finance minister Philip Hammond gives his half-yearly update on the economy on Tuesday amid an improvement in public finances but nervousness about the outlook.
Traders will also be looking closely for progress in talks with the EU to believe a Brexit transition deal — which Britain has said it will unveil in late March — will not be delayed.
Edgy traders briefly pushed the pound to a three-month low versus the euro on Wednesday as the EU rejected Britain’s proposed trade deal. Against the dollar, sterling was largely unmoved by this week’s Brexit headlines and is stuck trading around $1.3860, five cents below its post-Brexit-vote peak hit in January.
With the market pricing in an 80 percent probability of a Bank of England rate hike for May, the risk is that a delayed transition deal stays the BoE’s hand to tighten policy. Given Britain’s large trade deficit, its vulnerability to an extended trade war could also weigh on the pound.
(5) Watch the Hong Kong Dollar: It has fallen to a 33-year low
The Hong Kong dollar exchange rate isn’t where you would normally expect to see too much movement.
It’s confined to a trading band set and managed by the Hong Kong Monetary Authority. But this week the currency fell to a 33-year low, and markets are on high alert for HKMA intervention as it approaches the weaker end of its 7.75-7.85 trading band against the U.S. dollar.
Hitting 7.85 would force the HKMA to mop up some of the excess liquidity and narrow the interest rate gap that has pushed the spread between Hong Kong and U.S. interbank rates to its widest since the 2008 financial crisis.
The HKMA last intervened to defend the HK dollar’s peg in FX markets in 2015. While it sold bonds last year to mop up some cash, it has been absent this time. An attack on the trading band is unlikely to succeed however; the HKMA has some $500 billion in firepower.
The question is, will the market correct itself or will the HKMA be compelled to hold regular liquidity draining operations? For investors, there is no precedent to lean on.
As a gateway to Asian economies, money keeps pouring into Hong Kong and the territory is unlikely to suffer a shortage of cash any time soon even if some Chinese money moves back to the mainland.
Top Zacks #1 Rank (STRONG BUY) Stocks—
Express Scripts: This is a $45B market cap stock in the Medical Services industry, with a long-term Zacks VGM score of A.
Last week, Cigna offered to buy the company. This comes 3 months after Aetna bought CVS Health Corp.
Nissan Motor: This is a $41B market cap automaker, based in Japan. The long-term Zacks VGM score is A.
With NAFTA talks underway, and steel and aluminum tariffs announced, let’s discuss its North American operations.
Nissan in North America employs more than 20,000 people in the United States, Canada and Mexico and generates nearly 75,000 jobs through its 1,500 Nissan and Infinity dealerships across the continent.
HCA Holdings: This is a $30B hospital chain in the USA. The long-term Zacks VGM score is A.
The company operates a network of acute care hospitals, outpatient facilities, clinics and other patient care delivery settings.
The company also owns and manages freestanding surgery centers, diagnostic and imaging centers, radiation and oncology therapy centers, rehabilitation and physical therapy centers, and various other facilities.
Why do I like this stock? The forward P/E is nice and low at 11.9.
Across the week ahead, watch out for multiple threats of retaliation for steel and aluminum tariffs introduced by the Trump administration.
On Tuesday, study the results of the Pennsylvania special House election and be mindful of the latest U.S. consumer price inflation rate (the CPI).
Also on Tuesday, outside the USA, the Organization for Economic Cooperation and Development (OECD) will release new forecasts for growth in the major economies
On Friday, fresh data on USA housing permits and starts will get close scrutiny from traders.
On Tuesday, a renewed South Africa gets its latest manufacturing production numbers. The prior was +2.0% y/y.
Brazil’s broad retail sales data comes out. The prior was +6.4% y/y. The latest looks to be +6.6% y/y.
The U.S. CPI (ex-food & energy) comes out. Look for +0.2% m/m.
South Korea’s unemployment rate is 3.6%.
On Wednesday, Germany’s HICP consumer inflation rate comes out. It has been +1.2% y/y.
Eurozone industrial production comes out. It has been strong at +5.2% y/y.
On Thursday, the unemployment rate for the Netherlands comes out. It has been 4.2%.
Turkey’s unemployment rate also comes out. It has been 10.3%.
Switzerland’s central bank (SNB) will discuss its -0.75% sight deposit rate. That is a negative rate, not a typo, folks.
U.S. initial claims for unemployment come out. The prior was 231K.
On Friday, the Eurozone HICP consumer inflation rate comes out. It has been low at +1.0% y/y.
U.S. building permits and housing starts come out. Permits have been 1.396M and starts are at 1.326M.
U.S. capacity utilization comes out. It has been 77.5%.
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