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The Zacks Analyst Blog Highlights: Royal Dutch Shell, Micron and Western Digital

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For Immediate Release

Chicago, IL – June 26, 2018 – 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 Royal Dutch Shell (RDS.A - Free Report) , Micron (MU - Free Report) and Western Digital (WDC - 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:

China Stocks Running Downhill: Global Week Ahead

Last Friday’s headlines in the South China Morning Post offered up a sorry Mainland China equity market summary.

A bear market in China is almost here.

Now what happens?

According to this Hong Kong newspaper of record, the benchmark Shanghai Composite Index is now down -19% from its January high, on the cusp of a -20% decline generally seen by technical analysts as the threshold where stocks enter a bear market. The gauge rebounded +0.5% to 2,889.76 at the close on Friday.

If the decline resumes, sending stocks below the bear market threshold, it will be the first time since a major rout in 2015.

China’s stocks erased about US$514 billion in market value last week, or the equivalent of Sweden’s economy, after the Trump administration threatened additional tariffs worth US$200 billion following Beijing’s retaliatory duties.

For this Global Week Ahead, I reproduced the five big Reuters world market themes. These are likely to dominate the thinking of both investors and traders.

What’s the leading theme? It is the U.S.-China Trade War turning into reality.

‘Nuff said.

(1) U.S. China Trade War Rhetoric Turns to Action

As the trade war rhetoric starts to turn to action, China’s markets are on the defensive.

The yuan has fallen to its lowest level against the dollar since early 2018, stocks just had their biggest weekly decline in five months, and cash rates are rising — with the 14-day repo rate hitting a two-month high as firms locked in funding to cover the end of the quarter.

The question is: What might authorities do? At present they are trying to keep markets flush to make sure the economic wheels keep turning; the central bank injected a net 340 billion yuan ($52.3 billion) in the past week, including 200 billion yuan via its one-year medium-term lending facility.

Banks’ reserve ratios are also likely to be cut further.

These policy-easing expectations are partly driving the yuan’s slide, but investors are wondering now how far the weakness could go.

A weak yuan might help offset the trade impact. Yet a rapid currency fall, aside from provoking more ire in Washington, could feed on itself by fueling further outflows of money from China, as happened after the August 2015 devaluation. It would also be bad news for other emerging markets such a Taiwan, Mexico and South Korea that compete with China in export markets.

(2) Keep an Eye on U.S. Consumer Confidence Tuesday

Increasingly hostile trade war rhetoric, mixing in with tit-for-tat tariffs, increases risks for investors and consumers concerned about their portfolios and the prices they pay for imported goods.

U.S. consumer confidence, however, is expected to remain at a lofty level in June as corporate profits remain healthy. The report, due on June 26th, is forecast by a Reuters poll of economists to hold steady at 128, just off an 18-year high hit in May.

Economists point out the amount of tariffs being threatened is overall quite small in the context of a $20 trillion U.S. economy. In the case of China-U.S. trade, Beijing exports more than it imports, meaning it will run out of products it can tax well before Washington does. But try explaining that to people buying a TV to watch the World Cup.

(3) European Summit of Leaders Late This Week

The migration debate is overshadowing the official agenda for the June 28-29 EU Summit, which means chances are slim of market-moving reforms being finalized.

Nonetheless, up for discussion will be blueprints for strengthening the ESM bailout fund, a common Eurozone budget and the banking union project to boost trust in the bloc’s financial sector. The summit may also debate plans to further ease debt restructurings in Europe.

As for country-specific issues, Italy and Britain will be in focus — the summit will mark the first EU airing for Italian Prime Minister Giuseppe Conte. For Britain, meanwhile hopes are ebbing the event will break a deadlock on how to exit the EU as Prime Minister Theresa May is struggling to find a proposal on post-Brexit customs arrangements to take into the negotiations.

The weekend marks the second anniversary of the Brexit referendum and the clock is ticking down to the scheduled exit date of March 29, 2019. Sterling, down 8 percent since mid-April, is enjoying a brief reprieve thanks to an unexpectedly hawkish Bank of England meeting last Thursday, but remains on course for its worst quarter since the Brexit vote.

(4) Eurozone Consumer Price Inflation Numbers Hit the Tape

Flash Eurozone inflation figures are expected to show exactly why the ECB’s retreat from crisis-era stimulus measures will be glacial.

Economists anticipate a 1.3 percent annual rise in consumer prices in June, short of the ECB’s target of “below, but close to, 2 pct over the medium term.”

The ECB will end its 2.4 trillion euro bond-buying program in December, but signaled that negative interest rates are here to stay for some time. That means Mario Draghi’s 8-year term as ECB president could end in October 2019 without his ever having presided over a rate rise.

Since the ECB policy decision and Draghi’s press conference on June 14th, the euro has fallen as much as -2.6% and came close to breaking below $1.15 for the first time in almost a year. Morgan Stanley and others have lowered their euro forecasts, and weak inflation data could see another test of $1.15.

(5) Greek Debt Relief Is Happening

Having received three bailouts since 2010, Greece has taken a big step forward — the Eurozone has agreed to extend bond maturities and defer interest on a major part of its loans to Athens, along with a big cash injection.

This makes Greece’s debt load more sustainable, smoothing its path for the time after it exits the bailout in August.

Markets have reacted accordingly, with five- and 10-year bond yields falling 23 and 16 bps respectively, the latter at a four-week low GR5YT=RR GR10YT=RR.

This is good news for a Eurozone facing the risk of another crisis, this time in Italy. For Greece, the question now is when it can start borrowing on markets again. It sold bonds last year for the first time in three years and wants to raise another 4.5 billion euros in 2018, including its first 10-year issue in a decade.

The prospect of a new Greek issue is also tantalizing fund managers and investment bankers. But Greece has no immediate need for cash and the selloff in Italian debt has made issuance harder for southern European borrowers. Still, syndicate bankers reckon Athens should be able to grab a window of opportunity sometime before the August lull.

Top Zacks #1 Rank (STRONG BUY) Stocks—

Royal Dutch Shell: This $290B large cap stock has Zacks A’s in Value, Growth, and Momentum.

But did the OPEC agreement to raise production last week reverse the positive sentiment on major oil stocks?

Micron: This stock had a solid earnings beat last week, with positives on the outlook for the rest of the year. We have an A in Value and a B in Growth.

But now we have a U.S. China Trade War in hand. What happens to darling stocks in tech like this? Watch this stock closely, for the sentiment on chips overall will play out here.

Western Digital: This top-notch computer storage stock stays at a #1 Zacks Rank and has Zacks As in Value and Growth.

But the stock price is stuck.

I can imagine this stock’s price taking off, when the sentiment on financial risk comes back on. That is being held back by the U.S.-China Trade War rhetoric — bleeding into reality.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1 Stock of the Day pick for free.

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