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In the Global Week Ahead, the path to November’s U.S. presidential election kicks into higher gear.
The Iowa caucuses happen on Monday. We should begin to see results after 8pm ET.
Iowa caucuses determine how to apportion that state’s party delegates, who later attend the Democratic National Convention (DNC) on July 13th –16th in Milwaukee, Wisconsin.
There, a national candidate will be chosen to square off against President Trump.
Iowans — aka “Hawkeyes” to fans of American literature — have a decent track record at picking who ultimately wins the Democratic party leadership. They have correctly predicted 7 of the past 9 outcomes; and 9 of the past 12; including Hillary Clinton in 2016.
Iowans do not have a good track record at picking who will win the Presidential election. Only 2 of those last 9 picks; and 4 of the past 12; went on to win the grand prize.
According to Scotiabank economists, statistically speaking, you probably want to win enough of a share to go on. But not the highest share.
Realize: the major risk to 2020 GLOBAL markets may be this contentious U.S. election.
In addition, U.S. large-cap stock earnings risks remain elevated all week long. Ninety-three S&P 500 firms release Q4 earnings.
Among the names: Alphabet (formerly Google), Twitter, Ford, GM, Merck, Royal Caribbean (guidance pertinent to coronavirus effects) and Walt Disney.
We also get a key U.S. nonfarm payroll report for January. Consensus has +165K.
Finally, here are Reuters’ five world market themes, reordered for the equity trader.
(1) Chinese markets open after the Lunar New Year… with coronavirus in play.
Financial markets have gone swiftly from nonchalance to awe in reacting to the fast-spreading 2019-nCoV, or new coronavirus.
Global stocks have been roiled over the past week by headlines of cases and deaths, countries telling citizens not to travel or businesses shutting in China. On Monday, stocks in the world's second largest economy got mauled when re-opening after an extended Lunar New Year holiday, with China's blue-chip index tumbling nearly 8% and the Shanghai Composite losing $420 billion of its value.
China's central bank said on Monday it will inject 1.2 trillion yuan ($174 billion) worth of liquidity into the markets via reverse repo operations. Eyes will be on policy makers to see what monetary — or other — support they might stump up.
The virus’s progression has been likened to a schlock science fiction movie, replete with conspiracy theories around symptomless transmission and super-spreaders. Some 60 million people at the center of the outbreak are living under virtual lockdown.
A shock to China’s economy this quarter, which then reverberates through global supply chains, is a foregone conclusion. It’s just that no one can yet say how deep.
(2) Coronavirus repercussions are being felt far outside of Mainland China.
The coronavirus’ repercussions are being felt far and wide, well beyond its starting point in China’s Hubei province.
Countries reliant on Chinese demand have seen steep drops in their currencies, with the Australian dollar down around 5% in January, its worst month since 2016. The Thai and Korean currencies, exposed to China via tourism and goods exports respectively, are also taking a battering.
Growth forecast downgrades for China, the world’s No. 2 economy, are coming thick and fast, meaning estimates for other countries are being reworked, too. Tellingly, ‘Dr’ Copper, the best-known gauge of economic health, is down 10% in little more than a week, and oil suffered a fourth-straight week of losses.
World stocks have lost $1.2 trillion over the past two weeks and have come under fresh pressure again at the start of the week. Depending on how the virus spreads from now, there could be more pain to come. Selling may focus in particular on travel and leisure, with a European index of these sectors skidding to the lowest since October last week.
The beneficiaries? The usual safe-haven plays: gold, for instance, has enjoyed its best month in the last five.
(3) Could we see a new VIX volatility trade blow out?
When a slight U.S. inflation uptick pushed stock markets lower on Feb. 5th two years ago, few expected it to turn into one of the biggest Wall Street shake-ups in recent years.
That episode — “Volmageddon” — saw the VIX equity volatility gauge triple overnight to 50%, wiping out hordes of small punters who had piled into so-called inverse-vol investments.
These strategies, peddled via exchange-traded products and designed to profit from extended spells of market calm, yielded rich pickings as long as volatility stayed low. But as the VIX exploded higher, vehicles such as the ProShares Short VIX ETF tumbled over 80 percent in a day.
As we were reminded two years ago, volatility can spike spectacularly in quiet markets. As it happens, the coronavirus has sent the VIX to three-month highs and ProShares ETF, which had climbed back to the highest level reached since Volmageddon, has fallen again. But volatility gauges for bonds and currencies remain well below historic averages. Investors might be wise to brace for reversals.
(4) U.S. nonfarm payroll data gets updated on Friday.
Friday’s non-farm payroll data will show how the U.S. economy fared in the first month of the new decade.
The report is expected to show a pickup from December, with a Reuters poll forecasting 156,000 were added, from 145,000 the month before.
The previous decade hit a number of milestones. December’s report was the 111th monthly scorecard in a row to show employment gains, while the 3.5% unemployment rate matched a low from half a century ago and is roughly a third of the level at the start of the decade.
Worries of a trade-war-induced slowdown have faded since the Federal Reserve delivered three rate cuts in 2019. Recent data has largely shown the U.S. economy continuing to expand at a moderate pace, and the Fed has signaled that its monetary policy stance is unlikely to change this year.
(5) Are Eurozone banks turning a corner?
Blowout performances by Wall Street banks, and bumper Q4 earnings from the Spanish lender Santander, have fed hopes of a strong season for Eurozone banks, a raft of which will post results in coming days.
How heavyweights such as BNP Paribas, Intesa and ING fared in the last quarter of 2019 will shed more light on how they are riding the wave of negative rates.
Troubled Deutsche Bank reported a major loss due to one-offs, but shares rose nonetheless as investors turned their focus on the bank’s turnaround potential. With higher interest rates still far off, banks are finding it challenging to grow. But after 20 straight months of downgrades, earnings estimates have started to stabilize.
The coronavirus scare, however, threatens to strangle Europe’s economic recovery and therefore any banking revival. An index of bank shares has fallen more than 5% so far this year, underperforming the broader euro benchmark.
Top Zacks #1 Rank Stocks
(A) Samsung Electronics : This is the monster multinational South Korean firm with a $13.1B market capitalization.
I see a Zacks Value score of B, a Zacks Growth score of C, and a Zacks Momentum score of F.
This is the type of company shares that need to be watched, for coronavirus knock-on effects.
(B) SAP (SAP - Free Report) : This is a huge German-based multinational in Computer-Software. I see a $130 share price and a $156B market capitalization.
The Zacks Value score is D, the Zacks Growth score is F and the Zacks Momentum score is B.
How much further can solid large-cap momentum tech stocks like this go? We shall see. Momentum names may see the biggest profit-taking.
(C) T. Rowe Price Group (TROW - Free Report) : This is a more defensive U.S.-based investment management conglomerate. I see a $133 share price and a $31B market capitalization.
The Zacks Value score is D, the Zacks Growth score is B and the Zacks Momentum score is A. Those look solid.
Don’t be afraid to look beyond tech stocks — in 2020.
Key Global Macro
On Monday, we get the latest ISM manufacturing PMI report. There is a big issue concerning Boeing’s 737 Max to address. Consensus has 48.5. The prior was 47.2.
There are lots of European PMI to compare: I see the Italy manufacturing PMI (47.3 is consensus), the France PMI (51.0 is consensus), the German PMI (45.2 is consensus) and the Eurozone composite manufacturing PMI (47.8 is consensus) come out.
Look for weak Q4 GDP growth figures from Hong Kong. How weak (-1.4% is consensus) is the big question.
The mainland China Caixin manufacturing PMI should be 51.0, after a 51.5 print the prior time. These look pre-approved to me.
On Tuesday, U.S. durable goods order for January come out. Consensus sees a +2.4% m/m gain.
On Wednesday, the private U.S. ADP payroll data comes out. +160K is consensus.
EU retail trade data comes out. Look for a -1.1% m/m drop.
Brazil’s central bank most likely cuts the SELIC rate another quarter point to 4.25%. Another competing band of economists think they may hold.
On Thursday, German factory orders come out. These will be studied closely, to see where that key euro economy, and its industrial downturn, are going.
The Bank of India should keep its monetary policy rates on hold. The repo rate should remain at 5.15%.
China’s export and import data come out. I see -4.5% is consensus for exports and +20% is for imports.
On Friday, consensus sees a U.S. nonfarm payroll number of 165K in January. +145K was the prior December reading. The U.S. unemployment rate should be 3.5%. Average U.S. hourly earnings should be up +3.0% y/y. Look out for any surprises.
We get updates on industrial output from France (-0.3% m/m is consensus), Spain and Germany (-0.2 m/m).
Mexico, Chile and Brazil (+4.4% is the consensus CPI there) update us on their consumer inflation rates.
Russia’s one-week auction rate should fall to 6.0% from 6.25%. This is their monetary policy rate. I still see global central banks easing monetary conditions.
In conclusion, the Iowa caucuses could get more media attention than the coronavirus. Both will surely be primary trading drivers, just with different time horizons.
The coronavirus is a short-term stock market story. Iowa caucuses are more long-term.
Having written that, don’t ignore major EPS reports and nonfarm payroll data. These are not unique. Yet, they are crucial. They frame the core financial metrics, pinning together richly valued U.S. financial markets.
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Image: Shutterstock
The Iowa Caucuses: Global Week Ahead
In the Global Week Ahead, the path to November’s U.S. presidential election kicks into higher gear.
The Iowa caucuses happen on Monday. We should begin to see results after 8pm ET.
Iowa caucuses determine how to apportion that state’s party delegates, who later attend the Democratic National Convention (DNC) on July 13th –16th in Milwaukee, Wisconsin.
There, a national candidate will be chosen to square off against President Trump.
According to Scotiabank economists, statistically speaking, you probably want to win enough of a share to go on. But not the highest share.
Realize: the major risk to 2020 GLOBAL markets may be this contentious U.S. election.
In addition, U.S. large-cap stock earnings risks remain elevated all week long. Ninety-three S&P 500 firms release Q4 earnings.
Among the names: Alphabet (formerly Google), Twitter, Ford, GM, Merck, Royal Caribbean (guidance pertinent to coronavirus effects) and Walt Disney.
We also get a key U.S. nonfarm payroll report for January. Consensus has +165K.
Finally, here are Reuters’ five world market themes, reordered for the equity trader.
(1) Chinese markets open after the Lunar New Year… with coronavirus in play.
Financial markets have gone swiftly from nonchalance to awe in reacting to the fast-spreading 2019-nCoV, or new coronavirus.
Global stocks have been roiled over the past week by headlines of cases and deaths, countries telling citizens not to travel or businesses shutting in China. On Monday, stocks in the world's second largest economy got mauled when re-opening after an extended Lunar New Year holiday, with China's blue-chip index tumbling nearly 8% and the Shanghai Composite losing $420 billion of its value.
China's central bank said on Monday it will inject 1.2 trillion yuan ($174 billion) worth of liquidity into the markets via reverse repo operations. Eyes will be on policy makers to see what monetary — or other — support they might stump up.
The virus’s progression has been likened to a schlock science fiction movie, replete with conspiracy theories around symptomless transmission and super-spreaders. Some 60 million people at the center of the outbreak are living under virtual lockdown.
A shock to China’s economy this quarter, which then reverberates through global supply chains, is a foregone conclusion. It’s just that no one can yet say how deep.
(2) Coronavirus repercussions are being felt far outside of Mainland China.
The coronavirus’ repercussions are being felt far and wide, well beyond its starting point in China’s Hubei province.
Countries reliant on Chinese demand have seen steep drops in their currencies, with the Australian dollar down around 5% in January, its worst month since 2016. The Thai and Korean currencies, exposed to China via tourism and goods exports respectively, are also taking a battering.
Growth forecast downgrades for China, the world’s No. 2 economy, are coming thick and fast, meaning estimates for other countries are being reworked, too. Tellingly, ‘Dr’ Copper, the best-known gauge of economic health, is down 10% in little more than a week, and oil suffered a fourth-straight week of losses.
World stocks have lost $1.2 trillion over the past two weeks and have come under fresh pressure again at the start of the week. Depending on how the virus spreads from now, there could be more pain to come. Selling may focus in particular on travel and leisure, with a European index of these sectors skidding to the lowest since October last week.
The beneficiaries? The usual safe-haven plays: gold, for instance, has enjoyed its best month in the last five.
(3) Could we see a new VIX volatility trade blow out?
When a slight U.S. inflation uptick pushed stock markets lower on Feb. 5th two years ago, few expected it to turn into one of the biggest Wall Street shake-ups in recent years.
That episode — “Volmageddon” — saw the VIX equity volatility gauge triple overnight to 50%, wiping out hordes of small punters who had piled into so-called inverse-vol investments.
These strategies, peddled via exchange-traded products and designed to profit from extended spells of market calm, yielded rich pickings as long as volatility stayed low. But as the VIX exploded higher, vehicles such as the ProShares Short VIX ETF tumbled over 80 percent in a day.
As we were reminded two years ago, volatility can spike spectacularly in quiet markets. As it happens, the coronavirus has sent the VIX to three-month highs and ProShares ETF, which had climbed back to the highest level reached since Volmageddon, has fallen again. But volatility gauges for bonds and currencies remain well below historic averages. Investors might be wise to brace for reversals.
(4) U.S. nonfarm payroll data gets updated on Friday.
Friday’s non-farm payroll data will show how the U.S. economy fared in the first month of the new decade.
The report is expected to show a pickup from December, with a Reuters poll forecasting 156,000 were added, from 145,000 the month before.
The previous decade hit a number of milestones. December’s report was the 111th monthly scorecard in a row to show employment gains, while the 3.5% unemployment rate matched a low from half a century ago and is roughly a third of the level at the start of the decade.
Worries of a trade-war-induced slowdown have faded since the Federal Reserve delivered three rate cuts in 2019. Recent data has largely shown the U.S. economy continuing to expand at a moderate pace, and the Fed has signaled that its monetary policy stance is unlikely to change this year.
(5) Are Eurozone banks turning a corner?
Blowout performances by Wall Street banks, and bumper Q4 earnings from the Spanish lender Santander, have fed hopes of a strong season for Eurozone banks, a raft of which will post results in coming days.
How heavyweights such as BNP Paribas, Intesa and ING fared in the last quarter of 2019 will shed more light on how they are riding the wave of negative rates.
Troubled Deutsche Bank reported a major loss due to one-offs, but shares rose nonetheless as investors turned their focus on the bank’s turnaround potential. With higher interest rates still far off, banks are finding it challenging to grow. But after 20 straight months of downgrades, earnings estimates have started to stabilize.
The coronavirus scare, however, threatens to strangle Europe’s economic recovery and therefore any banking revival. An index of bank shares has fallen more than 5% so far this year, underperforming the broader euro benchmark.
Top Zacks #1 Rank Stocks
(A) Samsung Electronics : This is the monster multinational South Korean firm with a $13.1B market capitalization.
I see a Zacks Value score of B, a Zacks Growth score of C, and a Zacks Momentum score of F.
This is the type of company shares that need to be watched, for coronavirus knock-on effects.
(B) SAP (SAP - Free Report) : This is a huge German-based multinational in Computer-Software. I see a $130 share price and a $156B market capitalization.
The Zacks Value score is D, the Zacks Growth score is F and the Zacks Momentum score is B.
How much further can solid large-cap momentum tech stocks like this go? We shall see. Momentum names may see the biggest profit-taking.
(C) T. Rowe Price Group (TROW - Free Report) : This is a more defensive U.S.-based investment management conglomerate. I see a $133 share price and a $31B market capitalization.
The Zacks Value score is D, the Zacks Growth score is B and the Zacks Momentum score is A. Those look solid.
Don’t be afraid to look beyond tech stocks — in 2020.
Key Global Macro
On Monday, we get the latest ISM manufacturing PMI report. There is a big issue concerning Boeing’s 737 Max to address. Consensus has 48.5. The prior was 47.2.
There are lots of European PMI to compare: I see the Italy manufacturing PMI (47.3 is consensus), the France PMI (51.0 is consensus), the German PMI (45.2 is consensus) and the Eurozone composite manufacturing PMI (47.8 is consensus) come out.
Look for weak Q4 GDP growth figures from Hong Kong. How weak (-1.4% is consensus) is the big question.
The mainland China Caixin manufacturing PMI should be 51.0, after a 51.5 print the prior time. These look pre-approved to me.
On Tuesday, U.S. durable goods order for January come out. Consensus sees a +2.4% m/m gain.
On Wednesday, the private U.S. ADP payroll data comes out. +160K is consensus.
EU retail trade data comes out. Look for a -1.1% m/m drop.
Brazil’s central bank most likely cuts the SELIC rate another quarter point to 4.25%. Another competing band of economists think they may hold.
On Thursday, German factory orders come out. These will be studied closely, to see where that key euro economy, and its industrial downturn, are going.
The Bank of India should keep its monetary policy rates on hold. The repo rate should remain at 5.15%.
China’s export and import data come out. I see -4.5% is consensus for exports and +20% is for imports.
On Friday, consensus sees a U.S. nonfarm payroll number of 165K in January. +145K was the prior December reading. The U.S. unemployment rate should be 3.5%. Average U.S. hourly earnings should be up +3.0% y/y. Look out for any surprises.
We get updates on industrial output from France (-0.3% m/m is consensus), Spain and Germany (-0.2 m/m).
Mexico, Chile and Brazil (+4.4% is the consensus CPI there) update us on their consumer inflation rates.
Russia’s one-week auction rate should fall to 6.0% from 6.25%. This is their monetary policy rate. I still see global central banks easing monetary conditions.
In conclusion, the Iowa caucuses could get more media attention than the coronavirus. Both will surely be primary trading drivers, just with different time horizons.
The coronavirus is a short-term stock market story. Iowa caucuses are more long-term.
Having written that, don’t ignore major EPS reports and nonfarm payroll data. These are not unique. Yet, they are crucial. They frame the core financial metrics, pinning together richly valued U.S. financial markets.
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Click to get it free >>