For Immediate Release
Chicago, IL –June 11, 2019 – 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: Michelin (MGDDY - Free Report) , CBRE Group (CBRE - Free Report) and Pilgrim’s Pride (PPC - Free Report) .
Here are highlights from Monday’s Analyst Blog:
Rate Pressure Everywhere: Global Week Ahead
There is life beyond Presidential tweeting.
On Monday, before U.S. markets opened, Mexico’s peso rebounded to 19.16 pesos/USD from a low around 19.7 after the country reached a deal with the U.S. to curb migration, avoiding tariffs on Mexican imports set to start this week.
Over the last year, a Mexican Peso toggling around 19.0 pesos to the U.S. dollar is what traders show during periods of lower political uncertainty. Trading at a cheaper 20.0 pesos (and beyond) is the high uncertainty mark.
Still, the U.S.-China trade war is definitely bending macro data. This was shown everywhere I looked.
On Monday, data released by China’s Customs Bureau showed exports of Chinese goods rose by +1.1% in dollar terms during the month, compared to the same period a year ago.
· That was significantly ahead of the -3.8% decline predicted by economists polled by Reuters, and the -2.7% slide witnessed in May.
· Export volumes of China’s rare earths, which have recently become a focal point in the trade war, fell by more than -15% month on month to 3,640 tons.
Meanwhile, imports of goods into China fell by -8.5%, or the most since July 2016.
· Analysts had predicted just a -3.8% fall.
· The two sets of figures taken together helped push China’s overall monthly trade surplus to its highest level in the year so far.
Next are Reuters’ five World Market Themes on June 10th. These data releases and political issues are most likely to influence both traders and investors in the Global Week Ahead.
I have them in order of importance to equities. Notably, I lead with the role of central banks. Policy rate cut pressure has never been higher. And it is notably higher everywhere.
(1) Political Pressure Heaps Onto Central Banks… Everywhere!
From the United States to India, central banks have come under heavy political pressure.
President Trump has frequently lambasted policy decisions of Federal Reserve Chairman Jerome Powell, while Turkey’s Tayyip Erdogan calls regularly for lower borrowing costs. Public rows have broken out in India over the central bank’s independence.
Now the South African Reserve Bank is feeling the heat. Some members of the governing African National Congress party are pushing for its mandate to widen beyond its current remit of inflation-targeting to promote jobs and economic growth.
That is another worry for foreign investors on top of the past week’s shock GDP reading, showing a deeper-than-expected contraction in the first three months of 2019.
Many see the risk of painful parallels with Turkey, where the central bank, stymied by political interference, has resorted to unconventional policy tools to fight stubbornly high inflation. Unimpressed, many overseas investors have responded by pulling out.
That should serve as a reminder to South Africa’s government: Tinkering with central banks in emerging markets rarely ends well.
(2) From the USA, May Producer and Consumer Price Inflation Hits
The Fed’s latest catchphrase — “average inflation targeting” — will get some play when the U.S. Labor Department releases May producer and consumer price indexes.
On Tuesday’s PPI, a measure of pipeline inflation heavily influenced by raw material costs, is seen rising +2.0% year-on-year. The core measure, which strips out food and energy prices, is forecast at +2.3%.
But the Fed and investors will pay more attention to Wednesday’s CPI print, measuring the pocketbook impact. Headline and core are seen rising +1.9% and +2.1% respectively.
The concern is that CPI will mirror the Fed’s favorite inflation measure, the core Personal Consumption Expenditures (PCE) index. That rose 1.6% in the year to April and has consistently run below the official 2% target.
So, frustrated policymakers are floating once-unspeakable notions. If they try to get inflation to average 2% over time, instead of ranging symmetrically on either side of it, interest rates could be cut sooner rather than later.
A little extra inflation while the economy is strong looks better than deflation — a consumption-stifling alternative that would limit policy options if the economy turns south. That’s a full agenda for the June FOMC meeting the following week.
(3) Oil Prices Have Fallen Swiftly
Oil prices, hyper-sensitive to any signs of weakness in the global economy, have finally started reacting to the trade war news flow and the ominous signals bond markets are sending on the possibility of recession.
Until end-May, oil prices were holding above $70 a barrel. But recent dismal PMI readings may have tipped the balance, pushing Brent crude futures 12% lower in just three days.
With pricing sliding suddenly to five-month lows, analysts have been left wondering if demand for the black gold is weaker than earlier thought. Such heavy selling is pretty rare, particularly outside recessions.
A global recession this year is unlikely. But with trade waning — 2019 could turn out to be the worst year for global commerce flows in a decade — there are no compelling signs of economic improvement either.
Oil demand slows by several hundred thousand barrels per day during recessions, according to Morgan Stanley, which cut its Brent forecast for the second half of this year to $65-70 per barrel from $75-80.
Meanwhile, OPEC — the group which controls most of the world’s oil output — is starkly divided. The members’ latest spat is over the date of their next meeting. Iran has set the scene for a tough OPEC meeting, as it opposes a date change.
(4) Already Looking Past China’s Export, Investment and Lending Data
There’s plenty of life left in the Chinese dragon, but after roaring for three decades it’s certainly lost some of its puff.
Markets are primed for exports from the world’s second largest economy to show weakness and for investment and lending data to show Beijing’s stimulus efforts in the face of a trade war with Washington are bearing some fruit.
Indeed, investors are looking past these figures for May. PBOC boss Yi Gang has already signaled his readiness for more stimulus and focus is firmly on whether Presidents Xi and Trump can negotiate some kind of detente when they meet at the end-June G20 summit.
The conflict has in fact moved on from mere trade: Blacklists on companies, rare earths supply threats and China advising citizens to avoid U.S. travel, Washington’s criticism of Chinese human rights practices — little seems off limits.
The International Monetary Fund (IMF) already expects Chinese growth to slow to 6.2% this year and to 6% in 2020. That would be the weakest since 1990, but analysts believe real growth has already dipped below those levels. Weak data in coming days would merely confirm the grim outlook for the world economy.
(5) Turkey’s Monetary Policy Gets Set
Turkey’s central bank will publish its interest rate decision on Wednesday.
A few months ago, this meeting was meant to be the one at which policymakers were definitely going to start cutting rates, having successfully sailed through the rough waters of market turmoil sparked by political tensions.
Fast forward, and few of these issues have been put to bed. An election re-run in the country’s biggest city, Istanbul, is scheduled for June 23. The rocky U.S.-Turkey relationship has soured again over defense issues and trade tensions and economic woes are clouding the global backdrop.
But Turkey’s economy is undergoing a sharp adjustment following the lira’s 30% tumble in 2018 and near 10% drop so far this year. Inflation, now at nearly 19%, has eased quicker than expected. No doubt the 24% interest benchmark rate will have to come down. But moving too early is seen by many as another policy mistake that Turkey’s battered currency can ill afford.
Zacks #1 Rank (STRONG BUY) Stocks—
(1) Michelin: Yes. This is the $21B market-cap tire maker. It has a stunningly positive Zacks Value score of A, Growth score of A, and Momentum score of A. Take a look into this stock. However, the news on auto sales has not been good. I am not sure what is keeping the fire lit on this tire stock.
(2) CBRE Group:This big $16.5B market cap real estate stock is back on our list. As rates fall, these types of stocks often make more headway. The question is now: How much is already priced in here?
(3) Pilgrim’s Pride: Consumer Staples stocks are back to the top of Zacks Industry Ranks in early June. This $6.7B market cap stock, with a Zacks VGM score of A, is well worth taking a hard look at.
There will also be a trickle of corporate earnings reports: Sportswear maker lululemon, chipmaker Broadcom, tax preparerH&R Block and Canadian retailer Dollarma.
Meanwhile, video-game makers will make news at the industry’s annual E3 conference.
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