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Events Galore: Global Week Ahead

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Despite a holiday-shortened trading week in the U.S., this Global Week Ahead is jam packed with events.

The 50th Davos World Economic Forum kicks off Tuesday. The theme is “Stakeholders for a Cohesive and Sustainable World.” At Davos, under this year’s theme, the Big Four accounting firms launch an initiative. The joint effort standardizes how major companies report contributions to United Nations sustainable development goals.

The Trump impeachment trial gets under way on Tuesday, too. To no surprise, he will be at Davos. Justin Trudeau, Emmanuel Macron and Boris Johnson are no shows.

We have lots of central bank speak to parse this week. The Bank of Japan speaks up on Tuesday. The Bank of Canada on Wednesday. The European Central Bank issues its first decisions in the New Year on Thursday.

Perhaps most important for equities, Q4 earnings season continues. Last week, the big U.S. banks delivered a solid start to Q4 earnings season.

This week, more than 40 companies listed on the S&P 500 release results. Names include Netflix, Johnson & Johnson, Intel, IBM, Procter & Gamble, AmEx, Capital One and airlines like United, Southwest and American Air Lines.

Next are Reuters’ five world market themes, reordered in importance to equity traders.

(1) Netflix Reports on Tuesday

When Netflix, the first of the so-called FAANGs (Facebook, Amazon, Apple, Netlix and Google), reports Q4 results on Tuesday, investors will want to see how the streaming giant is coping with a wave of competition led by another entertainment heavyweight Walt Disney Co.

Launched last April, Disney+ looks like the most dangerous challenge yet to Netflix's dominance of an increasingly crowded video streaming market. Netflix shares are down about 8% since then, hit by worries over slowing subscriber growth and the costs of high-budget productions such as The Crown and The Irishman. Disney+, on the other hand, has risen 24%.

Other competitors are on the horizon. Apple's new streaming service costs $5 per month, less than half Netflix's monthly standard price. And AT&T will launch HBO Max in 2020.

Investors expect the stock to be volatile. Netflix options imply a 7.6% swing for the shares in either direction by next Friday, Jan. 24. Over the last eight quarters, on average, the shares moved 6% after the company reported results, according to Trade Alert.

(2) European Earnings Heading Up?

European equities have endured a nine-month long profits recession but relief may be coming — I/B/E/S Refinitiv estimates show STOXX 600 companies in line for 2.5% earnings growth in the fourth 2019 quarter.

That is the good news. The bad news is markets are already at record highs, and that is after a 24% rally last year. Probably central banks' stimulus helped, alongside better Brexit and global trade headlines towards end-2019. But it does imply there is little fuel in the tank for further market gains. Currently, forecasts are for 2.5% profit growth in Q4, but that is already more than halved from two months ago.

For 2020 as a whole, 8.8% growth is expected, but again subject to revisions. And while valuations are less exalted than U.S. peers, at 15 times forward earnings, they are hardly cheap.

Sluggish economies mean challenging times for retailers, autos and banks. But turnaround expectations will be tested in coming days when lenders UBS, ING and Bankinter report, while semiconductor makers ASML and STMicro could show if the tech sector is starting to recover.

(3) Lots of Global Central Bank Decisions This Week

Geopolitics overshadowed monetary policy for the first time in many months in early January. But such distractions tend to be short-lived nowadays, with investors getting back to central bank-watching swiftly.

Rate-setters in many countries are about to hold their first policy meetings of 2020 — in Japan on Monday and Tuesday, Canada on Wednesday, Norway and the Eurozone on Thursday. On Friday, China sets loan prime rates. In emerging markets, Indonesia and Malaysia bear watching on Wednesday — will they follow Turkey and South Africa by easing policy?

Japan, Canada, Norway and the European Central Bank (ECB) are not expected to make any changes, while it is unlikely China will act again so soon after its early-January reserve ratio cut for banks. The ECB, however, will launch its first strategy review since 2003 to rethink an inflation goal that has not been met for seven years.

Asset manager Pictet reckons at current prices, global stock markets have already priced over $2 trillion in central bank stimulus this year. But it predicts authorities will provide less than that, disappointing investors. So, what policymakers say or signal at the meetings could well set the tone for equity markets, which have resumed scaling record highs.

(4) Lots of PMIs Out on Friday

Friday brings "flash PMIs" in many countries — advance readings of purchasing managers' business activity indexes. While the Eurozone figures will be scrutinized to get a measure of economic recovery, British PMIs will grab more attention, given they comprise the last key data release before the Bank of England's (BOE) Jan. 30 meeting.

A poor number, coming on top of a string of dismal data, could seal the case for easing policy immediately. As recently as Jan. 10, markets saw a 20% chance of a BOE move this month but on Jan. 13 that probability leapt to 50% and is now above 60%. Falling gilt yields and sterling also imply investors are bracing for a rate reduction.

Of course, those moves could be reversed if PMIs surprise to the upside. But a modestly positive reading may still not deter the bank from cutting rates this month. In any case, lower British interest rates are fully priced for May.

(5) Davos World Economic Forum Opens, from Tuesday to Friday

Now that U.S. President Donald Trump has dealt with China on trade for now, it is probably a matter of time before his wrath falls on Europe. On Tuesday, he gets a platform to express his views, speaking at the Davos World Economic Forum.

While signing the Phase 1 deal with China, Trump already griped at having to "pay for our money" in a swipe at the Eurozone's negative borrowing costs. He also blames the "too high" dollar for the huge U.S. current account deficit. A currency war risk therefore may not be too remote, especially in an election year. And remember, the Treasury already lists Switzerland, Germany, Italy and Ireland as suspected currency "manipulators" — all have trade surpluses with the United States.

Trump will not be short of sparring opportunities at Davos — some 53 heads of state are to show up in the Alpine resort, including Germany's Angela Merkel. There will be 35 finance and 30 trade ministers. And given the green focus of this year's summit, 17-year-old climate activist Greta Thunberg will attend. It is unclear if her paths will cross those of Trump who is well known for his skepticism over climate change and has advised Thunberg via Twitter to "chill, Greta, chill.”

Top Zacks Rank Stocks

Delta Airlines (DAL - Free Report) : This is a $62 a share stock with a $40B market cap. The shares hold a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of C. Keep this in mind: Those long-term scores look solid to this stock picker.

However, we have lots of U.S. airlines reporting this week, to add in some turbulence. These guys already reported an earnings beat. They get 70% of their revenue from the U.S., and this is growing +7% each year.

Credit Suisse (CS - Free Report) : This is a $14 a share stock with a $35B market cap. I see a Zacks Value score of B and a Zacks Growth score of F and a Zacks Momentum score of A.

With European banks now living under a new ECB chief, keep this stock in mind on Thursday. That’s when LaGarde give up her pearls of wisdom… and some monetary stimulus.

Microchip Technology (MCHP - Free Report) : This is a semi chip company in the analog part of that hot space. I see a $110 a share price and a $26B market cap. The Zacks Value score is C, the Zacks Growth score is D and the Zacks Momentum score is C.

Those are very mediocre long-term share metrics. But who cares? The tech sector and stocks like this are leading us to higher and higher share prices. Nothing to see here.

Key Global Macro

On Monday, the People’s Bank of China will adjust its one and five-year loan prime rates again. It has lowered these by 10 basis points in two moves recently.

On Tuesday, Canada reports on its manufacturing sector in November. A call for a -1.0% m/m decline is in. October was at -0.7% m/m. That shows you: the U.S. manufacturing recession reached up there.

The Bank of Japan delivers a policy announcement. The focus there remains on PM Abe’s 26 trillion Yen fiscal stimulus.

Mexico’s unemployment rate is 3.4%. That should not move in this update.

The German ZEW indices are out.

On Wednesday, the Bank of Canada delivers a policy announcement.

U.S. existing home sales are out for December. These should bounce back. Foot traffic is sharply higher, given the good winter weather.

On Thursday, the European Central Bank delivers a policy announcement. Main refi at 0.0% is not expected to change. The Bank of Norway speaks to us too. That one does not matter.

U.S. initial jobless claims are out. I see a call for 214K. That is quite low.

On Friday, lot of flash PMIs hit the tape. I see EU composite, manufacturing and services, along with country sub-components France and Germany.

U.K. PMI data hits the tape too. The manufacturing PMI should be 48.7, up a tad from the prior weak reading at 47.8. But still below 50.

There is a global manufacturing recession going on, folks. That is the bad news.

The good news? All of these central banks have our share-owning backs.

Have a great, holiday-shortened trading week!

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