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To start the Global Week Ahead, Zacks Research Director Sheraz Mian gives us an update on Q2 earnings.
“This week brings results from more than 1,000 companies, including 56 S&P500 members.
This week’s docket includes:
• Major media players like Disney (DIS - Free Report) and CBS , • Consumer Staples players like Kraft Heinz (KHC - Free Report) and Tyson Foods (TSN - Free Report) and • Exploration and Production (E&P) operators like Devon Energy (DVN - Free Report) and Pioneer Natural Resources .
After seeing results from 388 S&P500 members through Friday, August 2nd, there are no major surprises on the growth front.
We knew it would be anemic. We should keep in mind (however) that the growth challenge is more a function of tough comparisons to last year’s record results than a cyclical downturn in profitability.
Total earnings for the 388 S&P500 index members that reported are up +0.8% from the same period last year on +4.3% higher revenues.
Earnings and revenue growth for the same cohort of companies had been -0.3% and +4.5% in Q1, respectively.
In other words, Q2 earnings growth is tracking modestly above what we saw in Q1. Revenue growth is almost even between Q1 and Q2.”
Next, are five Reuters world market themes. The ones that matter most to traders in the Global Week Ahead—
(1) The U.S. China Trade War Ramps
It’s been a familiar pattern in the Sino-U.S. trade war since 2018: Combative tweets from Donald Trump, high-level talks between the two sides, a stalemate, more tariffs and counter-tariffs, and then conciliatory messages.
This time it was Trump’s turn for a surprise move, raising the stakes in this real world version of the poker game. China then swiftly said it will have to take counter measures.
Global stock and commodity markets are diving deep into the red with investors skeptical over chances of success for Trump’s gamble and scrambling for cover in traditional havens such as top-rated government bonds, Swiss francs and Japan’s yen.
Benchmark bond yields have plummeted, with the entire German government borrowing horizon out to 30 years now in negative territory for the first time.
Chinese seed and food company shares and rare-earth firms are rising as they anticipate Beijing won’t buy more from the United States. U.S. shoe, apparel and consumer goods manufacturers are groaning about potential input price rises as well as hits to demand for their exports and damage to their supply chains.
The question of who’s suffering most from a trade war has no straight answers. Many reckon no one wins. The Fed’s interest rate cut this week may help ease the manufacturing pain in the United States, but the dollar has surged against the yuan since and will offset that for U.S. firms. China has done a lot more targeted fiscal and monetary easing, can more easily source U.S. imports from elsewhere and also has the ability to inflict pain on U.S. commodity and farm sectors that back a Trump presidency.
Trade data due out from China on Thursday is likely to reinforce a trend of declining exports and imports, the latter also a function of slowing investment and demand at home. Its trade surplus with the U.S. has been rising too. Growth may be at its weakest pace in 27 years, but foreign investor inflows into China suggest there is no hand wringing yet.
(2) So. Buy More Bonds!
Investors can’t get enough of U.S. Treasuries these days and that’s good news for the upcoming auction of $84 billion of new debt. The U.S. Treasury Department is looking to sell $38 billion of 3-year notes, $27 billion of 10-year notes and $19 billion of 30-year bonds between August 6 and August 8.
Appetite seems insatiable for U.S. Treasuries after the U.S. Federal Reserve’s first interest rate cut in more than a decade and President Trump’s move on Thursday to extend tariffs to essentially all Chinese imports, escalating a trade conflict that is now poised to further hit U.S. consumers and businesses.
And with Trump and Congress having struck a deal on a two-year extension of the debt limit in July, another obstacle is out of the way.
Trump’s tariff curve ball to the Fed saw markets immediately price in chances that policy makers may have to cut rates more aggressively. U.S. 10-year Treasury yields touched 1.832% in the wake of Trump’s tariff move. The massive drop in benchmark yields marked their lowest level since Nov. 9, 2016 - the day after Trump’s surprise presidential win. Thirty-year yields hit 2.368%, the lowest since October 2016.
Raising a red flag of recession ahead, the inverted U.S. Treasury yield curve between 3 months and 10 years has fallen deeper into negative territory since the latest Trump tariff threat - falling to close to the 12-year lows of minus 26 basis points set earlier this year.
(3) Will The Rest of the World’s Central Banks Follow the Fed?
The central banks of Norway, New Zealand, Australia, India, Philippines and Thailand all hold interest rate meetings this week and hot on the heels of the first cut in U.S. rates in over a decade, action is almost guaranteed.
Some will be looking to follow suit. New Zealand is expected to trim another 25 basis points off its 1.50% main rate and there are outside bets that Australia could even make it three cuts in row having already dropped borrowing costs down to 1%.
India is expected to make its fourth cut of the year too as growth continues to slow there and while Thailand is not expected to move the strength of the baht is clearly causing worries again.
Then there is the outlier Norway. The issue there is whether or not it sets up a September rate hike. It has been flirting with the idea for months but it might decide that now might not be the best time to do it. If that’s the case it will have to massage its message accordingly.
(4) Watch German Economic and Company Data
It will be busy in Europe next week with a blitz of data ranging from updated euro zone July services PMIs and HSBC results on Monday, German industrial orders, output on Tuesday and Wednesday and ThyssenKrupp (TKAG.DE) and Adidas (ADSGn.DE) results on Thursday that should show how European consumer and industrial wallets have been holding up.
It comes after two top German firms offered a snapshot of the euro zone’s flagging economy this week: Industrial heavyweight Siemens (SIEGn.DE) joined a chorus warning of weaker demand for automotive parts and other products, highlighting how the region’s manufacturing recession is sending shivers through the corporate heartland.
The warnings came as data showed euro-zone manufacturing contracted at its steepest rate since late 2012 in July as China’s slowdown and escalating global trade tension bite.
In contrast, results from Europe’s biggest e-commerce fashion retailer, Zalando (ZALG.DE), UK retailer Next (NXT.L) and sportswear group Puma (PUMG.DE) have not shown any major belt-tightening on the high street or online. On Thursday, Zalando hiked its profit outlook after a big jump in visits to its website.
This suggests that consumer spending may help the region avert a corporate recession in the second quarter. It also provides another rare ray of hope that household spending may help prop up the region’s economy with little sign that factories will be cranking up the gears any time soon.
(5) Finally, a Rising Fear of a Hard Brexit
The plunge in the British pound in recent days delivered investors a dose of what might happen should the market’s worst fears about Brexit - a disorderly, disruptive break from the European Union in October - come to pass.
Sterling skidded to a 30-month low against the dollar, below $1.21 and down 2.2% in less than a week, as fund managers, industry executives and Bank of England Governor Mark Carney all lined up to warn about the hit to the economy of a no-deal Brexit under new Prime Minister Boris Johnson.
The week should provide some insight into how the economy is holding up amid the political uncertainty: On Monday, the Purchasing Managers’ Index for Britain’s all-important services sector is published for July, with a Reuters poll forecasting a reading of 50.2, barely above the line of 50 that separates growth from contraction.
Friday sees the release of June gross domestic product data. Economists predict 0.1% growth rate month-on-month and 1.2% on a year earlier, down from 1.5% in May. Industrial output is forecast to have shrunk, as is manufacturing.
Some expect the economy may have shrunk in the second quarter, while the BoE on Thursday slashed its growth forecasts for this year and next.
The pound’s fortunes remain at the mercy of Brexit uncertainty, but should the economy’s downturn prove worse than feared, expect more losses for the British currency.
Top Zacks #1 Rank (STRONG BUY) Stocks—
(1) Intuitive Surgical (ISRG - Free Report) : This is a $59B market cap medical instrument stock. The company makes the hot Da Vinci surgery robot. The Value Score is D and the Growth score is C.
With a $513 price on a hot company, let’s see what happens when the ‘risk-off’ trade war ramps. My guess is there will be cheaper prices on stocks like this, on the way.
(2) Sun Hung Kai Properties (SUHJY - Free Report) : This is a Asian/China centric real estate company with a $44B market cap. The Zacks Value score is C and the Growth score is F.
I will put up the full company operating description on this $15 stock. It is interesting. It made our #1 list, in the middle of a huge U.S. China trade war and riots in Hong Kong. Not sure I am a buyer here. More likely I would be a spectator.
The Company is engaged in the development of and investment in properties for sale and rent, hotel operation, telecommunications, transportation, infrastructure and logistics.
Its segments include Property sales, Property rental, Hotel operation, Telecommunications, Transport infrastructure and logistics, and other businesses.
The Property sales and Property rental segments operate in Hong Kong, Mainland China and Singapore.
• Its property development for sale business includes: land acquisition, project planning, sales and marketing, and property management.
• It builds leases and manages a range of commercial projects in both core and decentralized areas. These provide office and retail space to tenants.
• It has a portfolio of hotels, serviced suites and residences.
• Its other businesses include: property management, construction, mortgage and other loan financing, data center facilities and a department store.
(3) Hitachi (HTHIY - Free Report) : Here is a Zacks #1 Rank company I have seen the ticker on our list regularly. This Japanese diversified electronics operations stalwart holds a Zacks Value score of A and a Growth score of B.
At $71 a share, this is still a GARP (growth at a reasonable price) stock.
Key Global Macro—
This could be a big week for Asia-Pacific markets. Macro data effects should span a mixture of local influences and global market spillovers.
• Five Asian central banks will deliver policy decisions, (Australia, New Zealand, India Thailand, and the Philippines) • Three countries update inflation readings, • Three update GDP growth signals and • China releases a wave of macro readings.
For the U.S. the ISM-services PMI will be the main macro focal point. A pair of dovish voting Fed officials will speak too.
How did Germany’s industrial and export complex end its Q2?
• June releases for German factory orders are out on Tuesday, • Industrial production figures will be out on Wednesday, and • Trade data will be out on Friday.
On Monday, the ISM non-manufacturing composite comes out. The consensus has 55.5. The latest was 55.1. U.S. services activity keep on humming despite the trade war.
French services PMI should be 52.2, Italy should be 50.6 and Germany is at 55.4.
The EU composite PMI should be 51.5.
On Tuesday, St. Louis Fed President Bullard addresses the U.S. economy.
German factory orders come out.
Australia’s RBA should keep the cash target rate at 1.0%. But New Zealand may cut its official cash rate to 1.25% from 1.5%.
India’s repo rate could be cut to 5.25% from 5.50%.
The Bank of Thailand should keep its repo rate flat at 1.75%.
On Wednesday, Chicago Fed President Evans hosts a media chat.
German industrial production figures come out.
China should release fresh trade figures.
On Thursday, Spanish industrial production figures come out.
The central bank in the Philippines should cut its overnight borrowing rate to 4.25% from 4.50%.
On Friday, Banco Central de Reserva del Peru is expected to stay on hold at 2.75% next Friday. Peru’s inflation decelerated to +2.1% y/y in July, versus a 2.3% prior reading.
German trade figures come out.
The U.K. is expected to show NO GDP growth for Q2.
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Global Week Ahead: An Update On Q2 Earnings
To start the Global Week Ahead, Zacks Research Director Sheraz Mian gives us an update on Q2 earnings.
“This week brings results from more than 1,000 companies, including 56 S&P500 members.
This week’s docket includes:
• Major media players like Disney (DIS - Free Report) and CBS ,
• Consumer Staples players like Kraft Heinz (KHC - Free Report) and Tyson Foods (TSN - Free Report) and
• Exploration and Production (E&P) operators like Devon Energy (DVN - Free Report) and Pioneer Natural Resources .
After seeing results from 388 S&P500 members through Friday, August 2nd, there are no major surprises on the growth front.
We knew it would be anemic. We should keep in mind (however) that the growth challenge is more a function of tough comparisons to last year’s record results than a cyclical downturn in profitability.
Total earnings for the 388 S&P500 index members that reported are up +0.8% from the same period last year on +4.3% higher revenues.
Earnings and revenue growth for the same cohort of companies had been -0.3% and +4.5% in Q1, respectively.
In other words, Q2 earnings growth is tracking modestly above what we saw in Q1. Revenue growth is almost even between Q1 and Q2.”
Next, are five Reuters world market themes. The ones that matter most to traders in the Global Week Ahead—
(1) The U.S. China Trade War Ramps
It’s been a familiar pattern in the Sino-U.S. trade war since 2018: Combative tweets from Donald Trump, high-level talks between the two sides, a stalemate, more tariffs and counter-tariffs, and then conciliatory messages.
This time it was Trump’s turn for a surprise move, raising the stakes in this real world version of the poker game. China then swiftly said it will have to take counter measures.
Global stock and commodity markets are diving deep into the red with investors skeptical over chances of success for Trump’s gamble and scrambling for cover in traditional havens such as top-rated government bonds, Swiss francs and Japan’s yen.
Benchmark bond yields have plummeted, with the entire German government borrowing horizon out to 30 years now in negative territory for the first time.
Chinese seed and food company shares and rare-earth firms are rising as they anticipate Beijing won’t buy more from the United States. U.S. shoe, apparel and consumer goods manufacturers are groaning about potential input price rises as well as hits to demand for their exports and damage to their supply chains.
The question of who’s suffering most from a trade war has no straight answers. Many reckon no one wins. The Fed’s interest rate cut this week may help ease the manufacturing pain in the United States, but the dollar has surged against the yuan since and will offset that for U.S. firms. China has done a lot more targeted fiscal and monetary easing, can more easily source U.S. imports from elsewhere and also has the ability to inflict pain on U.S. commodity and farm sectors that back a Trump presidency.
Trade data due out from China on Thursday is likely to reinforce a trend of declining exports and imports, the latter also a function of slowing investment and demand at home. Its trade surplus with the U.S. has been rising too. Growth may be at its weakest pace in 27 years, but foreign investor inflows into China suggest there is no hand wringing yet.
(2) So. Buy More Bonds!
Investors can’t get enough of U.S. Treasuries these days and that’s good news for the upcoming auction of $84 billion of new debt. The U.S. Treasury Department is looking to sell $38 billion of 3-year notes, $27 billion of 10-year notes and $19 billion of 30-year bonds between August 6 and August 8.
Appetite seems insatiable for U.S. Treasuries after the U.S. Federal Reserve’s first interest rate cut in more than a decade and President Trump’s move on Thursday to extend tariffs to essentially all Chinese imports, escalating a trade conflict that is now poised to further hit U.S. consumers and businesses.
And with Trump and Congress having struck a deal on a two-year extension of the debt limit in July, another obstacle is out of the way.
Trump’s tariff curve ball to the Fed saw markets immediately price in chances that policy makers may have to cut rates more aggressively. U.S. 10-year Treasury yields touched 1.832% in the wake of Trump’s tariff move. The massive drop in benchmark yields marked their lowest level since Nov. 9, 2016 - the day after Trump’s surprise presidential win. Thirty-year yields hit 2.368%, the lowest since October 2016.
Raising a red flag of recession ahead, the inverted U.S. Treasury yield curve between 3 months and 10 years has fallen deeper into negative territory since the latest Trump tariff threat - falling to close to the 12-year lows of minus 26 basis points set earlier this year.
(3) Will The Rest of the World’s Central Banks Follow the Fed?
The central banks of Norway, New Zealand, Australia, India, Philippines and Thailand all hold interest rate meetings this week and hot on the heels of the first cut in U.S. rates in over a decade, action is almost guaranteed.
Some will be looking to follow suit. New Zealand is expected to trim another 25 basis points off its 1.50% main rate and there are outside bets that Australia could even make it three cuts in row having already dropped borrowing costs down to 1%.
India is expected to make its fourth cut of the year too as growth continues to slow there and while Thailand is not expected to move the strength of the baht is clearly causing worries again.
Then there is the outlier Norway. The issue there is whether or not it sets up a September rate hike. It has been flirting with the idea for months but it might decide that now might not be the best time to do it. If that’s the case it will have to massage its message accordingly.
(4) Watch German Economic and Company Data
It will be busy in Europe next week with a blitz of data ranging from updated euro zone July services PMIs and HSBC results on Monday, German industrial orders, output on Tuesday and Wednesday and ThyssenKrupp (TKAG.DE) and Adidas (ADSGn.DE) results on Thursday that should show how European consumer and industrial wallets have been holding up.
It comes after two top German firms offered a snapshot of the euro zone’s flagging economy this week: Industrial heavyweight Siemens (SIEGn.DE) joined a chorus warning of weaker demand for automotive parts and other products, highlighting how the region’s manufacturing recession is sending shivers through the corporate heartland.
The warnings came as data showed euro-zone manufacturing contracted at its steepest rate since late 2012 in July as China’s slowdown and escalating global trade tension bite.
In contrast, results from Europe’s biggest e-commerce fashion retailer, Zalando (ZALG.DE), UK retailer Next (NXT.L) and sportswear group Puma (PUMG.DE) have not shown any major belt-tightening on the high street or online. On Thursday, Zalando hiked its profit outlook after a big jump in visits to its website.
This suggests that consumer spending may help the region avert a corporate recession in the second quarter. It also provides another rare ray of hope that household spending may help prop up the region’s economy with little sign that factories will be cranking up the gears any time soon.
(5) Finally, a Rising Fear of a Hard Brexit
The plunge in the British pound in recent days delivered investors a dose of what might happen should the market’s worst fears about Brexit - a disorderly, disruptive break from the European Union in October - come to pass.
Sterling skidded to a 30-month low against the dollar, below $1.21 and down 2.2% in less than a week, as fund managers, industry executives and Bank of England Governor Mark Carney all lined up to warn about the hit to the economy of a no-deal Brexit under new Prime Minister Boris Johnson.
The week should provide some insight into how the economy is holding up amid the political uncertainty: On Monday, the Purchasing Managers’ Index for Britain’s all-important services sector is published for July, with a Reuters poll forecasting a reading of 50.2, barely above the line of 50 that separates growth from contraction.
Friday sees the release of June gross domestic product data. Economists predict 0.1% growth rate month-on-month and 1.2% on a year earlier, down from 1.5% in May. Industrial output is forecast to have shrunk, as is manufacturing.
Some expect the economy may have shrunk in the second quarter, while the BoE on Thursday slashed its growth forecasts for this year and next.
The pound’s fortunes remain at the mercy of Brexit uncertainty, but should the economy’s downturn prove worse than feared, expect more losses for the British currency.
Top Zacks #1 Rank (STRONG BUY) Stocks—
(1) Intuitive Surgical (ISRG - Free Report) : This is a $59B market cap medical instrument stock. The company makes the hot Da Vinci surgery robot. The Value Score is D and the Growth score is C.
With a $513 price on a hot company, let’s see what happens when the ‘risk-off’ trade war ramps. My guess is there will be cheaper prices on stocks like this, on the way.
(2) Sun Hung Kai Properties (SUHJY - Free Report) : This is a Asian/China centric real estate company with a $44B market cap. The Zacks Value score is C and the Growth score is F.
I will put up the full company operating description on this $15 stock. It is interesting. It made our #1 list, in the middle of a huge U.S. China trade war and riots in Hong Kong. Not sure I am a buyer here. More likely I would be a spectator.
The Company is engaged in the development of and investment in properties for sale and rent, hotel operation, telecommunications, transportation, infrastructure and logistics.
Its segments include Property sales, Property rental, Hotel operation, Telecommunications, Transport infrastructure and logistics, and other businesses.
The Property sales and Property rental segments operate in Hong Kong, Mainland China and Singapore.
• Its property development for sale business includes: land acquisition, project planning, sales and marketing, and property management.
• It builds leases and manages a range of commercial projects in both core and decentralized areas. These provide office and retail space to tenants.
• It has a portfolio of hotels, serviced suites and residences.
• Its other businesses include: property management, construction, mortgage and other loan financing, data center facilities and a department store.
(3) Hitachi (HTHIY - Free Report) : Here is a Zacks #1 Rank company I have seen the ticker on our list regularly. This Japanese diversified electronics operations stalwart holds a Zacks Value score of A and a Growth score of B.
At $71 a share, this is still a GARP (growth at a reasonable price) stock.
Key Global Macro—
This could be a big week for Asia-Pacific markets. Macro data effects should span a mixture of local influences and global market spillovers.
• Five Asian central banks will deliver policy decisions, (Australia, New Zealand, India Thailand, and the Philippines)
• Three countries update inflation readings,
• Three update GDP growth signals and
• China releases a wave of macro readings.
For the U.S. the ISM-services PMI will be the main macro focal point. A pair of dovish voting Fed officials will speak too.
How did Germany’s industrial and export complex end its Q2?
• June releases for German factory orders are out on Tuesday,
• Industrial production figures will be out on Wednesday, and
• Trade data will be out on Friday.
On Monday, the ISM non-manufacturing composite comes out. The consensus has 55.5. The latest was 55.1. U.S. services activity keep on humming despite the trade war.
French services PMI should be 52.2, Italy should be 50.6 and Germany is at 55.4.
The EU composite PMI should be 51.5.
On Tuesday, St. Louis Fed President Bullard addresses the U.S. economy.
German factory orders come out.
Australia’s RBA should keep the cash target rate at 1.0%. But New Zealand may cut its official cash rate to 1.25% from 1.5%.
India’s repo rate could be cut to 5.25% from 5.50%.
The Bank of Thailand should keep its repo rate flat at 1.75%.
On Wednesday, Chicago Fed President Evans hosts a media chat.
German industrial production figures come out.
China should release fresh trade figures.
On Thursday, Spanish industrial production figures come out.
The central bank in the Philippines should cut its overnight borrowing rate to 4.25% from 4.50%.
On Friday, Banco Central de Reserva del Peru is expected to stay on hold at 2.75% next Friday. Peru’s inflation decelerated to +2.1% y/y in July, versus a 2.3% prior reading.
German trade figures come out.
The U.K. is expected to show NO GDP growth for Q2.