Davos goes live!
Ah yes, it’s the start of a New Year. Global elites gather in the deep snow of Switzerland to network and learn. This secretive meeting opens as populist revolts stew in a number of countries -- such as the U.K., France, Brazil and the USA.
The 2019 theme is “Globalization 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution.”
Here’s a hyperlink to a book and its intro on that topic--
The Fourth Industrial Revolution, by Davos Founder Klaus Schwab
‘Ubiquitous, mobile supercomputing. Intelligent robots. Self-driving cars. Neuro-technological brain enhancements. Genetic editing. The evidence of dramatic change is all around us and it’s happening at exponential speed.’
In the Global Week Ahead, sixty-one S&P 500 firms also release Q4 earnings reports.
Among the names: Microsoft, Intel, Ford, Capital One, Procter & Gamble, American Airlines, Southwest Airlines and Starbucks.
On Thursday, the ECB hits the tape with a monetary policy decision.
Finally, the usual Reuters five big world market themes rank all of the top stories. I put them in a fresh order of importance to equities.
(1) Davos Goes Live
Yes, it is that time of year again! Movers and shakers from politics, central banks, industry and finance descend onto the Swiss Alpine town of Davos to brainstorm, chinwag, network, ski, party and figure out how to deal with some of the world’s most pressing problems.
Japan’s Prime Minister Shinzo Abe and German Chancellor Angela Merkel will join Irish Taoiseach Leo Varadkar and South Africa’s Cyril Ramaphosa, among others. Of course, no Davos would be complete without International Monetary Fund chief Christine Lagarde, and Britain’s Prince William will add a splash of royal glamour. And then there are the new(ish) kids on the block: Brazil’s far-right President Jair Bolsanero, Italy’s Giuseppe Conte and his Spanish counterpart Pedro Sanchez.
But more noteworthy may be the list of those who won’t come: U.S. President Donald Trump and his cabinet, Brexit-bound British Prime Minister Theresa May and French President Emmanuel Macron, who will stay at home to deal with the “yellow vest” protests.
This year’s theme at the annual meeting of the World Economic Forum? “Globalization 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution.”
(2) The U.S. Shutdown Slowdown Is Here
Last year at Davos, U.S. Treasury Secretary Steven Mnuchin sent the dollar plunging by saying a weak currency was good for the United States. This year though, with a government in shutdown, President Donald Trump has canceled Mnuchin’s Switzerland trip.
Trump is also economizing in other ways, including buying McDonalds burgers for White House visitors. But anxiety is growing over how much the shutdown could hit U.S. growth and to what extent it will filter through to already stuttering world growth. So far, damage looks limited — jobless claims have continued to fall and the Philly Fed business outlook survey was above forecast.
But the longer it continues, the worse it gets. Not only are 800,000 government workers going without pay, a delay to tax refunds for other citizens will hit companies that rely on consumer spending.
The government has until early March before the debt ceiling kicks in. It could then also miss some social security payments. But the Democrat-controlled House shows no sign of agreeing Trump’s demands for $5.7 billion to fund a border wall. And a House vote to fund the government through Feb. 28 was postponed to the coming week.
Mnuchin, meanwhile, has declined to testify to the House about how the shutdown may affect the upcoming tax filing season.
(3) Signs of China Growth Weakness Mount
Data out on Monday showed China’s economy slowed in the fourth quarter, under pressure from faltering domestic demand and bruising U.S. tariffs.
Growth for 2018 fell to its lowest in nearly three decades, putting pressure on Beijing to roll out more stimulus to avert a worse slowdown.
Growing signs of weakness in China — which has generated nearly a third of global growth in recent years — are fueling anxiety about risks to the world economy and weighing on profits for companies ranging from Apple to big carmakers. Other data just released shows investment and retail sales continued to languish, while the jobless rate edged higher.
Beijing has offered a series of fiscal and monetary support measures. Unlike in 2015 or during prior slowdowns, the government has been careful to avoid simply throwing state money at the problem. As the Chinese proverb goes, mountains cannot turn, only rivers can. Be it household spending sops, tax cuts, infrastructure projects funded by local governments or money market operations, China seems determined not to turn its back on a commitment to deleveraging and market reform. That makes it difficult to say when the economy will rebound.
(4) There’s a Eurozone Slowdown to Worry About, Too!
ECB bond-buying is officially over, but with economic data and inflation both continuing to underwhelm, the central bank has little time to relax.
Policymakers have acknowledged the Eurozone slowdown could last longer than anticipated but will be hoping nonetheless that upcoming data might bring some relief.
In particular, they will monitor the snapshot of business activity in the bloc in the shape of flash PMIs for January.
They are out on Thursday, hours before the ECB meeting, and Reuters polls indicate some stabilization is likely after recent dire readings. Powerhouse Germany, which barely skirted recession in the latter part of 2018, releases its ZEW sentiment survey on Tuesday.
ECB President Draghi is as yet unlikely to change his assessment of the balance of risks facing the economy, but that may be just a question of time. After all, China’s economic slowdown and the U.S. government shutdown are weighing on global growth and the Eurozone still needs to weather the fallout from Brexit.
(5) Does Brexit Happen, or Not?
Another week closer to the date Britain leaves the European Union. Or are we?
Given how crushingly Prime Minister Theresa May’s proposed Brexit agreement was defeated by lawmakers, there is little chance her Plan B — to be presented in coming days — will get away with just minor amendments.
So markets now reckon the March 29th deadline will be extended to give parliament more time to negotiate the manner of exit or even to organize a second referendum.
The optimism has driven sterling to two-month highs against the dollar, with 4 percent-plus gains from Jan. 3 lows. Options markets too imply further pound strength over the three-month period that encompasses the deadline.
Of course, market glee might be misplaced. If May fails to forge consensus within her party and with opposition leader Jeremy Corbyn and if parliament fails to agree an extension, Britain will crash out of the EU without a deal.
Corbyn wants a pledge from May to block a no-deal Brexit before joining cross-party talks, but May describes this as impossible. Her Plan B will be disclosed on Monday and voted on by parliament on Jan. 29. Sterling looks set for another volatile week.
Top Zacks Stocks—
Mylan N.V (MYL - Free Report) : This is a $15B market cap generic drug company, and the stock is a Zacks #1 with a Zacks VGM score of B.
With a forward P/E of 5.82, a nice entry point on a deep Value stock is showing here, after the December stock market low.
Altice USA (ATUS - Free Report) : This is a communication components stock with $13.6B in market cap. The Zacks #1 Rank and a Zacks VGM score of A say most of what needs to be written.
I will add that a widespread 5G rollout is behind the hot story.
Keysight Technologies (KEYS - Free Report) : Are tech stocks back on the menu? If they are the Measuring Instruments industry surely gets a bid.
That means this $13B market cap Zacks #1 Rank and Zacks VGM score of B stock will light up the board -- with a green arrow.
Key Global Macro—
On Monday, the China macro slowdown story will dominate.
The Bank of Japan, the central bank of Malaysia, and that of South Korea issue policy decisions later in the week.
On Thursday, the ECB policy decision is out.
On Monday, GDP growth in China came out at +6.4% y/y. +6.5% was the prior reading.
On Tuesday, the BoJ holds a monetary policy meeting.
Real GDP growth in South Korea should be up to +2.3% y/y, from +2.0% y/y.
The World Economic Forum annual meeting in Davos gets rolling.
The German ZEW indexes come out. These are forecast to be weaker.
On Wednesday, Brazil’s IBGE consumer inflation rate should be +3.8% y/y, in line with the prior +3.86% y/y prior reading. This matters for monetary policy easing in that country.
On Thursday, there is a ECB monetary policy meeting in Frankfurt. Mario Draghi holds a presser. The ECB deposit rate at -0.4% is not in play, nor its main refi rate at 0.0%.
Australia’s unemployment rate is 5.1%.
On Friday, the German IFO indexes come out.
U.S. durable good orders come out.