We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
The Financial Times reported the EU has agreed to grant the U.K. a Brexit extension until January 31st 2020, removing the risk of an imminent no-deal departure and creating the political space for Westminster to decide on the timing of a general election.
National ambassadors from the EU27 gave their blessing on Monday morning to a “flextension” that could last as long as the end of January but which gives the U.K. the possibility to leave earlier if its withdrawal agreement has been ratified.
The coming Global Week Ahead has a trifecta of major economic news in the USA:
Traders get the first-read on U.S. Q3 real GDP growth, on Wednesday.
A likely 25 bps rate cut, a new FOMC outlook, and a presser from Powell on Wednesday The Federal October non-farm jobs report out on Friday.
Q3 earnings season also continues to pick up steam. More than 160 companies on the S&P 500 are slated to report results.
The names include tech giants like Apple, Alphabet and Facebook but also a range of other major companies, from consumer names like Kraft Heinz to energy companies like ExxonMobil and ConocoPhillips.
For the 199 S&P 500 index members that have reported Q3 results already, total earnings are down -0.3%. Meanwhile total revenues are up +4.5%.
Please note: ‘Total earnings’at Zacks means ‘aggregate net income’ for the 199 S&P 500 members. Not mean, median or market-cap earnings per share (EPS). The latter three metrics are weighted EPS measures.
Zacks Research Director Sheraz Mian prefers net income as a measure of fundamental earnings growth and not EPS — given the distorting effects of share buybacks on EPS growth rates.
Next are Reuters’ five world market themes. I reordered them in importance to equities.
(1) The Fed Cuts Rates 25 Basis Points
There are no guarantees in life, but a 25 basis point Fed rate cut this week is widely considered a sure thing.
You can see it in the CME’s FedWatch tool, where odds of a cut in the fed funds target rate to 1.50-1.75% are at 94%. That’s up from about 84% a week ago and 64% a month ago.
The expectations are also apparent in the yield curve, where the spread between 2-year and 10-year Treasuries has widened to around 18 basis points. It was below 4 bps just after the Fed’s last rate cut. That slice of the curve inverted in August, sparking fears of a U.S recession that would force the Fed to join the negative rate situation of other developed economies.
The 3-month/10-year yield curve, too, has turned positive after being inverted for the most part of six months. That’s down to a fall in shorter-dated yields, reflecting confidence the Fed has at least one more cut up its sleeve.
What next, though?
Clues may lie in U.S. company earnings. As we near the halfway mark for the Q3 season, we’ve seen more upside surprises than misses from S&P 500 companies. That’s giving investors a reason to be optimistic about the business cycle.
With Friday’s October payrolls report likely to show unemployment at its lowest level in half a century and wages ticking up, not too many folks will want to bet the house on a December Fed rate cut.
(2) European Banks Report Earnings En Masse
Coming up: A crucial week for European banks. Names such as Deutsche Bank, HSBC, Credit Suisse, ING, BNP Paribas and Santander will report third-quarter numbers, and by Friday, results from 61% of the sector will be known.
Eurozone lenders’ travails are well known, their margins relentlessly pressured by the Eurozone’s ultra-low interest rates. No surprise, then, that analysts have been downgrading earnings estimates for 19 straight months. Little joy is expected in Q3.
But — and there is a but…
With the Brexit fog starting to dissipate and so much growth gloom already priced in, it might just be time for investors to turn a blind eye to bank margins and focus on the positives. And banks will benefit, albeit only slightly, from tiered ECB rates that should offer a small reprieve from penalty charges they pay on idle cash.
Moreover, bank shares are cheap, carry dividend yields close to 6% and are this year’s worst performing European sector. If an economic recovery materializes, they should be first in line to benefit.
(3) Massive Protests the World Over
From Hong Kong to Beirut to Santiago, protests and civil unrest have been raging, posing a headache for investors as well as governments.
Hong Kongers have been protesting for greater democracy for five months, while in Chile tens of thousands have gathered for mainly peaceful protests over inequality. In Lebanon, banks have been shut for seven working days as hundreds of thousands flooded the streets in anger at the political class, while in Baghdad a protestor has died after being struck in the face by a tear gas canister.
With many money managers and risk analysts fearing the world might be on the cusp of its first recession in more than a decade, the root cause of unrest — inequality, joblessness, government spending cuts and corruption — may only deepen.
All that is upping concerns that governments may unwind reforms and embark on spending splurges to placate the masses. But fiscal loosening in a world swamped with debt and heading into another downturn will unnerve creditors and bond holders, especially those holding government debt as an insurance against recession and a haven from volatility. Investors’ focus in coming weeks may be on the streets of global capitals.
(4) What Will Boris Johnson Do After the EU Extension?
Prior to today’s Jan. 31st extension, Oct 31st was when Britain was to exit the European Union, with Prime Minister Boris Johnson saying he would rather be “dead in a ditch” than delay Brexit again. But with the U.K. parliament failing to play along, he’s been forced to ask for an extension. The EU decided to grant it on Monday.
Presumably unwilling to die in a ditch, Johnson is still holding out hope that parliament will agree to a general election that might give him a majority to ram through his deal.
So, what’s next?
As to the outcome of an election, if there is one — it’s anyone’s guess. Polls suggest Labor is lagging Johnson’s Tories, but these have proved unreliable in the past. So, what we will get for sure is Brextension, and also possibly an election.
German wealth manager DWS, meanwhile, remind us of another option: cancelling Brexit altogether. That seems unlikely, but DWS reckons chances of this are close to 50:50.
(5) The Bank of Japan Follows the Fed
Once the Fed meeting is past, attention will turn to the Bank of Japan, which announces a policy decision the following day.
The BOJ is likely to warn markets of slower economic growth than expected, and also that policy rates might go even deeper into negative territory. Such messaging would indicate the super-easy policy bias will be extended until possibly end-2020.
Governor Haruhiko Kuroda says the BOJ could “certainly” cut rates further and analysts reckon a move to -0.2% or even -0.3% are possible from the current -0.1%. But no one is quite sure what it would take to make that cut.
Export-reliant Japan is already smarting from the trade war and slowing global demand. A higher sales tax rate has just kicked in. And Japanese banks are feeling the pain of a flat yield curve that keeps even 10-year yields negative.
But given the BOJ isn’t prone to shock and awe, there’s palpably more excitement over Tokyo’s tiffs with the International Olympic Committee on the schedule for road athletics than next week’s policy meeting. More negative policy rates could leave investors as bleary eyed as the early morning marathoners.
Top Zacks #1 Rank Stocks
Intel ((INTC - Free Report) ): This is the granddaddy of chip stocks. It is a $250B market cap stock with a B for Zacks Value, a B for Zacks Growth and an A for Zacks Momentum.
After last week’s strong EPS report, the covering analysts upgraded earnings estimates and put this stock back on our #1 list.
Square ((SQ - Free Report) ): This is a $27B market cap stock. It processes credit card transactions on cell phones, iPads and the like. Unlike Intel, I see an F for Zacks Value tagging along with an A for Zacks Growth and an F for Zacks Momentum.
With U.S. large-cap stock indexes trading near all-time highs, this is one pricey stock. I would avoid it.
Dish Network (): This is a $16.3B market cap stock. I see an A for Zacks Value, and F for Zacks Growth, and a C for Zacks momentum.
With all of the content streaming services out there, I was surprised to see this satellite cable stock on our #1 list. It shows you — cable companies are putting up a strong fight.
Key Global Macro
Once again, the coming week is a triple header of major economic news in the USA:
Traders get the first-read on U.S. Q3 real GDP growth, on Wednesday
A likely 25 bps rate cut, a new FOMC outlook, and a presser from Powell on Wednesday, and
The Federal October nonfarm jobs report out on Friday
On Monday, Tokyo’s CPI should be at +0.8% y/y. This shows the lack of consumer inflation in Japan.
On Tuesday, the Case-Shiller home price index is looking for a +1.9% y/y growth rate. It has been +2.0% y/y. Those are not bubble housing inflation numbers.
On Wednesday,the Fed meeting concludes at 2 pm ET. Powell’s presser is at 2:30pm ET. The largest potential risk surrounds the debate over whether the Fed may alter its guidance toward the possible future rate path in a hawkish fashion. That could tighten financial conditions.
The Bank of Canada meets, too. Scotiabank says that BoC hike in this environment is out of the question. So, the obvious risk to market pricing is skewed toward more dovish guidance than markets anticipate.
Brazil may cut its SELIC rate 50 basis points.
The Bank of Japan delivers its monetary policy rate(s) too.
Q3 GDP growth lands for the USA. Growth is forecast at +1.6 to 1.8% q/q at a seasonally adjusted and annualized rate. If that estimate is on the mark, it would reinforce how the U.S. economy is slowing from +3.1% growth in Q1, to +2.0% in Q2, and potentially to a sub-2% number now.
Mexico reports GDP growth, too. Little growth is expected for the fourth consecutive quarter.
China updates on key manufacturing PMIs too.
On Thursday,U.S. PCE core inflation is out. After core CPI held unchanged at +2.4% y/y, core PCE inflation may also remain unchanged at +1.8%.
On Friday, nonfarm and wages land. Consensus is for +90K to +100K in October. That would be the softest month since May. It will be important to make adjustments for the impact of the GM strike. That saw 45,000 employees walk out.
Wage growth is forecast to rise back to +3.0% y/y after it had decelerated to +2.9% in September. The household unemployment rate should stay low at 3.6%, up a tick from the prior 3.5% rate.
The U.S. ISM-manufacturing PMI is out, too. It’s feasible that the U.S. ISM manufacturing sector improved a bit this month. This is a view informed by regional Fed surveys with the caution they don’t fully capture transportation sector challenges such as the GM strike.
In sum, we first get the Q3 GDP data in. Second, equity traders collect the Fed’s many views. Third, we end the week with a nonfarm payroll report and a U.S. ISM manufacturing number for October.
This will give observers a solid contemporaneous understanding of where the U.S. economy stands. And to a degree, where the global economy stands in the minds of U.S. executives, economists and policymakers.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
A Trifecta of Macro Events: Global Week Ahead
Markets awoke to positive global news on Monday.
The Financial Times reported the EU has agreed to grant the U.K. a Brexit extension until January 31st 2020, removing the risk of an imminent no-deal departure and creating the political space for Westminster to decide on the timing of a general election.
National ambassadors from the EU27 gave their blessing on Monday morning to a “flextension” that could last as long as the end of January but which gives the U.K. the possibility to leave earlier if its withdrawal agreement has been ratified.
The coming Global Week Ahead has a trifecta of major economic news in the USA:
The names include tech giants like Apple, Alphabet and Facebook but also a range of other major companies, from consumer names like Kraft Heinz to energy companies like ExxonMobil and ConocoPhillips.
For the 199 S&P 500 index members that have reported Q3 results already, total earnings are down -0.3%. Meanwhile total revenues are up +4.5%.
Please note: ‘Total earnings’ at Zacks means ‘aggregate net income’ for the 199 S&P 500 members. Not mean, median or market-cap earnings per share (EPS). The latter three metrics are weighted EPS measures.
Zacks Research Director Sheraz Mian prefers net income as a measure of fundamental earnings growth and not EPS — given the distorting effects of share buybacks on EPS growth rates.
Next are Reuters’ five world market themes. I reordered them in importance to equities.
(1) The Fed Cuts Rates 25 Basis Points
There are no guarantees in life, but a 25 basis point Fed rate cut this week is widely considered a sure thing.
You can see it in the CME’s FedWatch tool, where odds of a cut in the fed funds target rate to 1.50-1.75% are at 94%. That’s up from about 84% a week ago and 64% a month ago.
The expectations are also apparent in the yield curve, where the spread between 2-year and 10-year Treasuries has widened to around 18 basis points. It was below 4 bps just after the Fed’s last rate cut. That slice of the curve inverted in August, sparking fears of a U.S recession that would force the Fed to join the negative rate situation of other developed economies.
The 3-month/10-year yield curve, too, has turned positive after being inverted for the most part of six months. That’s down to a fall in shorter-dated yields, reflecting confidence the Fed has at least one more cut up its sleeve.
What next, though?
Clues may lie in U.S. company earnings. As we near the halfway mark for the Q3 season, we’ve seen more upside surprises than misses from S&P 500 companies. That’s giving investors a reason to be optimistic about the business cycle.
With Friday’s October payrolls report likely to show unemployment at its lowest level in half a century and wages ticking up, not too many folks will want to bet the house on a December Fed rate cut.
(2) European Banks Report Earnings En Masse
Coming up: A crucial week for European banks. Names such as Deutsche Bank, HSBC, Credit Suisse, ING, BNP Paribas and Santander will report third-quarter numbers, and by Friday, results from 61% of the sector will be known.
Eurozone lenders’ travails are well known, their margins relentlessly pressured by the Eurozone’s ultra-low interest rates. No surprise, then, that analysts have been downgrading earnings estimates for 19 straight months. Little joy is expected in Q3.
But — and there is a but…
With the Brexit fog starting to dissipate and so much growth gloom already priced in, it might just be time for investors to turn a blind eye to bank margins and focus on the positives. And banks will benefit, albeit only slightly, from tiered ECB rates that should offer a small reprieve from penalty charges they pay on idle cash.
Moreover, bank shares are cheap, carry dividend yields close to 6% and are this year’s worst performing European sector. If an economic recovery materializes, they should be first in line to benefit.
(3) Massive Protests the World Over
From Hong Kong to Beirut to Santiago, protests and civil unrest have been raging, posing a headache for investors as well as governments.
Hong Kongers have been protesting for greater democracy for five months, while in Chile tens of thousands have gathered for mainly peaceful protests over inequality. In Lebanon, banks have been shut for seven working days as hundreds of thousands flooded the streets in anger at the political class, while in Baghdad a protestor has died after being struck in the face by a tear gas canister.
With many money managers and risk analysts fearing the world might be on the cusp of its first recession in more than a decade, the root cause of unrest — inequality, joblessness, government spending cuts and corruption — may only deepen.
All that is upping concerns that governments may unwind reforms and embark on spending splurges to placate the masses. But fiscal loosening in a world swamped with debt and heading into another downturn will unnerve creditors and bond holders, especially those holding government debt as an insurance against recession and a haven from volatility. Investors’ focus in coming weeks may be on the streets of global capitals.
(4) What Will Boris Johnson Do After the EU Extension?
Prior to today’s Jan. 31st extension, Oct 31st was when Britain was to exit the European Union, with Prime Minister Boris Johnson saying he would rather be “dead in a ditch” than delay Brexit again. But with the U.K. parliament failing to play along, he’s been forced to ask for an extension. The EU decided to grant it on Monday.
Presumably unwilling to die in a ditch, Johnson is still holding out hope that parliament will agree to a general election that might give him a majority to ram through his deal.
So, what’s next?
As to the outcome of an election, if there is one — it’s anyone’s guess. Polls suggest Labor is lagging Johnson’s Tories, but these have proved unreliable in the past. So, what we will get for sure is Brextension, and also possibly an election.
German wealth manager DWS, meanwhile, remind us of another option: cancelling Brexit altogether. That seems unlikely, but DWS reckons chances of this are close to 50:50.
(5) The Bank of Japan Follows the Fed
Once the Fed meeting is past, attention will turn to the Bank of Japan, which announces a policy decision the following day.
The BOJ is likely to warn markets of slower economic growth than expected, and also that policy rates might go even deeper into negative territory. Such messaging would indicate the super-easy policy bias will be extended until possibly end-2020.
Governor Haruhiko Kuroda says the BOJ could “certainly” cut rates further and analysts reckon a move to -0.2% or even -0.3% are possible from the current -0.1%. But no one is quite sure what it would take to make that cut.
Export-reliant Japan is already smarting from the trade war and slowing global demand. A higher sales tax rate has just kicked in. And Japanese banks are feeling the pain of a flat yield curve that keeps even 10-year yields negative.
But given the BOJ isn’t prone to shock and awe, there’s palpably more excitement over Tokyo’s tiffs with the International Olympic Committee on the schedule for road athletics than next week’s policy meeting. More negative policy rates could leave investors as bleary eyed as the early morning marathoners.
Top Zacks #1 Rank Stocks
Intel ((INTC - Free Report) ): This is the granddaddy of chip stocks. It is a $250B market cap stock with a B for Zacks Value, a B for Zacks Growth and an A for Zacks Momentum.
After last week’s strong EPS report, the covering analysts upgraded earnings estimates and put this stock back on our #1 list.
Square ((SQ - Free Report) ): This is a $27B market cap stock. It processes credit card transactions on cell phones, iPads and the like. Unlike Intel, I see an F for Zacks Value tagging along with an A for Zacks Growth and an F for Zacks Momentum.
With U.S. large-cap stock indexes trading near all-time highs, this is one pricey stock. I would avoid it.
Dish Network (): This is a $16.3B market cap stock. I see an A for Zacks Value, and F for Zacks Growth, and a C for Zacks momentum.
With all of the content streaming services out there, I was surprised to see this satellite cable stock on our #1 list. It shows you — cable companies are putting up a strong fight.
Key Global Macro
Once again, the coming week is a triple header of major economic news in the USA:
On Monday, Tokyo’s CPI should be at +0.8% y/y. This shows the lack of consumer inflation in Japan.
On Tuesday, the Case-Shiller home price index is looking for a +1.9% y/y growth rate. It has been +2.0% y/y. Those are not bubble housing inflation numbers.
On Wednesday, the Fed meeting concludes at 2 pm ET. Powell’s presser is at 2:30pm ET. The largest potential risk surrounds the debate over whether the Fed may alter its guidance toward the possible future rate path in a hawkish fashion. That could tighten financial conditions.
The Bank of Canada meets, too. Scotiabank says that BoC hike in this environment is out of the question. So, the obvious risk to market pricing is skewed toward more dovish guidance than markets anticipate.
Brazil may cut its SELIC rate 50 basis points.
The Bank of Japan delivers its monetary policy rate(s) too.
Q3 GDP growth lands for the USA. Growth is forecast at +1.6 to 1.8% q/q at a seasonally adjusted and annualized rate. If that estimate is on the mark, it would reinforce how the U.S. economy is slowing from +3.1% growth in Q1, to +2.0% in Q2, and potentially to a sub-2% number now.
Mexico reports GDP growth, too. Little growth is expected for the fourth consecutive quarter.
China updates on key manufacturing PMIs too.
On Thursday, U.S. PCE core inflation is out. After core CPI held unchanged at +2.4% y/y, core PCE inflation may also remain unchanged at +1.8%.
On Friday, nonfarm and wages land. Consensus is for +90K to +100K in October. That would be the softest month since May. It will be important to make adjustments for the impact of the GM strike. That saw 45,000 employees walk out.
Wage growth is forecast to rise back to +3.0% y/y after it had decelerated to +2.9% in September. The household unemployment rate should stay low at 3.6%, up a tick from the prior 3.5% rate.
The U.S. ISM-manufacturing PMI is out, too. It’s feasible that the U.S. ISM manufacturing sector improved a bit this month. This is a view informed by regional Fed surveys with the caution they don’t fully capture transportation sector challenges such as the GM strike.
In sum, we first get the Q3 GDP data in. Second, equity traders collect the Fed’s many views. Third, we end the week with a nonfarm payroll report and a U.S. ISM manufacturing number for October.
This will give observers a solid contemporaneous understanding of where the U.S. economy stands. And to a degree, where the global economy stands in the minds of U.S. executives, economists and policymakers.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>