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All Square Across Buyer & Seller? Global Week Ahead
Read MoreHide Full Article
Why do they say fair and square?
The meaning of 'fair' is acceptable or right. In this expression, 'square' means true and honest. People started using 'square' in this way in the 16th century.
It originated from the idea that a square has perfect straight sides – the opposite of crooked.
A little over two weeks from now, Italy reopens its borders, from June 3rd — without restrictions. Domestically, Italy has already eased its lockdown.
That reintegrates the Eurozone’s 3rd largest economy. Recall. In early March, Italy became the 1st European country to impose a lockdown, around the region of Lombardy. More than 31K people have died of coronavirus inside that country.
The rest of the world will be watching closely. Stock traders among them.
Look ahead at a parallel track of info: Traders have loads of macro catalysts to prep for.
The most forward-looking of coming signals should be sifted from the pack. April macro data will be foreseeably negative. Those will be priced in already.
However, this is a risk market not done worrying.
Any sign of 2nd wave infections and re-imposition of shutdowns?
That’s durably bearish.
Given sideways trading on major U.S. large cap indexes, I call it ‘fair and square’ at the moment. In this battle for insights going on between share buyers and share sellers.
Next are Reuters’ five world market themes reordered for equity traders.
(1) Big box U.S. retailers report earnings. Outlook and color are more important.
The U.S. first-quarter earnings season is mostly winding down, but the retail sector is just revving up.
Coming days bring results from big U.S. retailers including Walmart, Home Depot, Lowe’s, Target, Kohl’s and Best Buy. Their figures will show whether Americans, locked down by coronavirus, are still spending money.
With more than 35 million U.S. jobs lost since mid-March, the outlook isn’t rosy for the consumer discretionary sector — it is expected to post a -45% drop in Q1 earnings.
Consumer staples, on the other hand, should see a +5.2% increase, according to IBES data from Refinitiv.
The retailers are reporting in the shadow of online shopping giant Amazon, which is among the “Stay-at-Home” stocks benefiting from the lockdown. Its shares have soared some +28% this year.
(2) Will more gaming go on with WTI oil futures?
Tuesday brings the monthly expiration of U.S. West Texas Intermediate crude futures contract.
Normally uneventful, the expiry turned into a nightmare last month when crude slumped to negative-$40 a barrel and brimming storage tanks discouraged traders from taking delivery of oil.
Many are worried about a repeat performance. Already, the U.S. Commodities Futures Trading Commission has warned market participants they should be prepared for volatility and negative pricing again. After all, oil storage remains tight and U.S. demand is still 23% below last year’s average.
But oil prices have rallied of late on hopes energy demand will get a boost from an easing of lockdown restrictions. In another hopeful sign, U.S. crude inventories fell in the most recent week for the first time since January.
Yet some traders seem to be heeding the CFTC’s warning. Volumes in the July futures contract, which expires in a month’s time, are outpacing the June contract by nearly 50%.
(3) Time for China’s People’s Congress to announce more stimulus.
Months late, and in a city emerging from the lockdown’s grip, China’s National People’s Congress convenes in Beijing on May 22.
At issue for markets are the annual growth target and fiscal policy details. Sources told Reuters last year a growth target around 6% was eyed. By March, something like 5% was on the table. Both seem fanciful now. The magnitude of the targeted deficit and the size of debt-raising needed to pay for it are also in focus.
The long-standing deficit ceiling of 3% of GDP will likely be breached. To plug that, something like 5 trillion yuan ($700 billion) in special bonds could be raised. That may also offer a guide to what kind of monetary effort the People’s Bank of China (PBoC) is crafting.
The PBoC’s failure to cut a key bank lending rate on Friday caused some to wonder if it will opt instead to slice its loan prime rate on Wednesday. But possibly, it’s the fiscal bazooka that’s being polished.
(4) Will the Fed apply negative policy rates?
Love them or loathe them, negative interest rates are back in the spotlight as ammunition-depleted central banks debate the pros and cons of going down the unorthodox route already trodden by the BOJ and ECB.
The Federal Reserve has so far brushed aside President Trump’s calls to adopt negative rates. Bank of England governor Andrew Bailey too said he isn’t considering taking rates sub-zero. But markets reckon otherwise. Fed funds futures, for the first time ever, reflect a small chance that a negative rate policy will find its way to U.S. shores. Short-dated British gilt yields are back below 0%.
The truth is the coronavirus crisis is heaping pressure on policymakers to do more to support growth. New Zealand has flagged a possible shift to negative rates, just days after Norway cut rates to 0%. Even BoE boss Bailey declined to rule it out altogether.
Powell and other Fed officials will be talking in coming days, the former testifying before a Senate committee on Tuesday. Bailey will take questions from U.K. lawmakers on Wednesday. Their comments will be scanned closely for any shift in stance.
(5) Still more emerging market rate cuts on the way.
Aside from China, there’s a pack of other emerging markets chomping at the bit to chop interest rates.
After Indonesia on Tuesday and Thailand on Wednesday, Turkey and South Africa follow on Thursday and both are expected to cut rates again despite heavy beatings their currencies’ have endured of late.
Analyst polls predict South Africa will cut its 4.25% main rate by another 50 basis points. Economists stress any policy easing must be sizable if it is to offer any help to the suffering economy.
Turkey’s meeting will be even more interesting. The lira has plunged to record lows, hard currency reserves are dwindling and inflation is in the double digits, yet all that probably won’t deter the central bank from lopping another 50-100 basis points off its 8.75% repo rate.
Zacks #1 Rank (STRONG BUY) Stocks
Taiwan Semi (TSM - Free Report) : This is a $270B market cap chip monster, with shares priced at just under $50 each. I see a Zacks Value score of B, a Zacks Growth score of C, and a Zacks Momentum score of D.
This is a U.S. election year. The company just announced a new chip plant located in Arizona. Still, it is good to see a major chip company in our top list of stocks.
Peloton (PTON - Free Report) : This is now a $12.6B market cap stock, with shares priced at $48 each. I see a Zacks Value score of F, a Zacks Growth score of C, and a Zacks Momentum score of D.
Let me see. Do I buy Taiwan Semi or Peloton, for the exact same price? LOL. I am a seller here. Shutdowns are ending. A sustained competitive advantage is not clear. The “Stay-at-Home” stocks are going to get faded.
AngloGold Ashanti (AU - Free Report) : This is a $10.8B market cap South African gold miner, with shares priced around $28 each. I see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of B.
Why does no one want a stock like this? Coronavirus is ripping thru emerging market populations. What happened to meatpackers can happen to gold miners. “Seen one, seen ‘em all!” Gold bulls shall talk up the Fed money printing. That’s an old, new story.
Key Global Macro
On Monday, Japan will officially enter technical recession on Sunday evening (ET time) when it releases Q1 GDP. That likely shrinks by over -1% for a 2nd consecutive quarter.
The U.S. NAHB housing index comes out. I see consensus has a low 33.0 mark.
On Tuesday, the latest Eurozone ZEW sentiment indexes come out. Eurozone economic sentiment rests miserably at 25.2.
The German ZEW indexes get refreshed too. Germany’s current situation index rests at -91.5. Germany’s economic sentiment index is at 28.2, just a tad above the Eurozone.
Chair Powell testifies before the Senate Banking Committee about the CARES Act (Coronavirus, Aid, Relief and Economic Security).
The Bank of Indonesia likely cuts policy rates 25 bps, from 4.5% to 4.25%.
On Wednesday, minutes to the FOMC meeting on February 28th - 29th come out.
The Bank of Thailand will cut rates 25 bps, from 0.75% to 0.50%.
U.S. housing starts should be 960K and building permits at 1M in fresh shutdown-driven data.
On Thursday, Powell speaks again at a “Fed Listens” event on the community effects of COVID-19.
Just before he does so, Vice Chair Clarida will deliver an on-line address about the U.S. economic outlook and monetary policy.
U.S. existing home sales should be down -16.5% m/m.
Initial U.S. claims should go up by another 2.5M this week.
On Friday, Eurozone PMI’s come out. A Eurozone GDP ‘nowcast’ model that uses PMIs to estimate GDP growth presently estimates that region’s economy shrank by 7–8% in Q2 at a seasonally adjusted but non-annualized rate, or over -30% annualized.
U.K. PMIs come out, as do U.K. retail sales. A PMI-based ‘nowcast’ model of U.K. GDP growth presently estimates Q2 U.K. GDP at around -7% q/q at a seasonally adjusted but non-annualized rate.
The U.S. bond market will close early, ahead of the May 25th Memorial Day holiday.
Conclusion
With the initial pandemic surprise, shock, and panic over, and shutdowns getting lifted, the question must be raised.
Did you buy stocks?
Saudi Arabia’s sovereign wealth fund did.
The Financial Times stated this: They snapped up stakes worth at least $7.7 billion in U.S. and European blue-chip companies during the first three months of the year.
The largest investments by the Public Investment Fund, chaired by Crown Prince Mohammed bin Salman, include a holding in U.K. energy major BP worth $827.8 million, and a stake in Boeing, valued at $713.6 million at the end of March, according to a U.S. regulatory filing.
These investors aggressively hunted down assets at knockdown prices during the coronavirus pandemic.
Happy Trading!
Warm Regards,
John Blank
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 >>
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All Square Across Buyer & Seller? Global Week Ahead
Why do they say fair and square?
The meaning of 'fair' is acceptable or right. In this expression, 'square' means true and honest. People started using 'square' in this way in the 16th century.
It originated from the idea that a square has perfect straight sides – the opposite of crooked.
A little over two weeks from now, Italy reopens its borders, from June 3rd — without restrictions. Domestically, Italy has already eased its lockdown.
That reintegrates the Eurozone’s 3rd largest economy. Recall. In early March, Italy became the 1st European country to impose a lockdown, around the region of Lombardy. More than 31K people have died of coronavirus inside that country.
The rest of the world will be watching closely. Stock traders among them.
Look ahead at a parallel track of info: Traders have loads of macro catalysts to prep for.
The most forward-looking of coming signals should be sifted from the pack. April macro data will be foreseeably negative. Those will be priced in already.
However, this is a risk market not done worrying.
Any sign of 2nd wave infections and re-imposition of shutdowns?
That’s durably bearish.
Given sideways trading on major U.S. large cap indexes, I call it ‘fair and square’ at the moment. In this battle for insights going on between share buyers and share sellers.
Next are Reuters’ five world market themes reordered for equity traders.
(1) Big box U.S. retailers report earnings. Outlook and color are more important.
The U.S. first-quarter earnings season is mostly winding down, but the retail sector is just revving up.
Coming days bring results from big U.S. retailers including Walmart, Home Depot, Lowe’s, Target, Kohl’s and Best Buy. Their figures will show whether Americans, locked down by coronavirus, are still spending money.
With more than 35 million U.S. jobs lost since mid-March, the outlook isn’t rosy for the consumer discretionary sector — it is expected to post a -45% drop in Q1 earnings.
Consumer staples, on the other hand, should see a +5.2% increase, according to IBES data from Refinitiv.
The retailers are reporting in the shadow of online shopping giant Amazon, which is among the “Stay-at-Home” stocks benefiting from the lockdown. Its shares have soared some +28% this year.
(2) Will more gaming go on with WTI oil futures?
Tuesday brings the monthly expiration of U.S. West Texas Intermediate crude futures contract.
Normally uneventful, the expiry turned into a nightmare last month when crude slumped to negative-$40 a barrel and brimming storage tanks discouraged traders from taking delivery of oil.
Many are worried about a repeat performance. Already, the U.S. Commodities Futures Trading Commission has warned market participants they should be prepared for volatility and negative pricing again. After all, oil storage remains tight and U.S. demand is still 23% below last year’s average.
But oil prices have rallied of late on hopes energy demand will get a boost from an easing of lockdown restrictions. In another hopeful sign, U.S. crude inventories fell in the most recent week for the first time since January.
Yet some traders seem to be heeding the CFTC’s warning. Volumes in the July futures contract, which expires in a month’s time, are outpacing the June contract by nearly 50%.
(3) Time for China’s People’s Congress to announce more stimulus.
Months late, and in a city emerging from the lockdown’s grip, China’s National People’s Congress convenes in Beijing on May 22.
At issue for markets are the annual growth target and fiscal policy details. Sources told Reuters last year a growth target around 6% was eyed. By March, something like 5% was on the table. Both seem fanciful now. The magnitude of the targeted deficit and the size of debt-raising needed to pay for it are also in focus.
The long-standing deficit ceiling of 3% of GDP will likely be breached. To plug that, something like 5 trillion yuan ($700 billion) in special bonds could be raised. That may also offer a guide to what kind of monetary effort the People’s Bank of China (PBoC) is crafting.
The PBoC’s failure to cut a key bank lending rate on Friday caused some to wonder if it will opt instead to slice its loan prime rate on Wednesday. But possibly, it’s the fiscal bazooka that’s being polished.
(4) Will the Fed apply negative policy rates?
Love them or loathe them, negative interest rates are back in the spotlight as ammunition-depleted central banks debate the pros and cons of going down the unorthodox route already trodden by the BOJ and ECB.
The Federal Reserve has so far brushed aside President Trump’s calls to adopt negative rates. Bank of England governor Andrew Bailey too said he isn’t considering taking rates sub-zero. But markets reckon otherwise. Fed funds futures, for the first time ever, reflect a small chance that a negative rate policy will find its way to U.S. shores. Short-dated British gilt yields are back below 0%.
The truth is the coronavirus crisis is heaping pressure on policymakers to do more to support growth. New Zealand has flagged a possible shift to negative rates, just days after Norway cut rates to 0%. Even BoE boss Bailey declined to rule it out altogether.
Powell and other Fed officials will be talking in coming days, the former testifying before a Senate committee on Tuesday. Bailey will take questions from U.K. lawmakers on Wednesday. Their comments will be scanned closely for any shift in stance.
(5) Still more emerging market rate cuts on the way.
Aside from China, there’s a pack of other emerging markets chomping at the bit to chop interest rates.
After Indonesia on Tuesday and Thailand on Wednesday, Turkey and South Africa follow on Thursday and both are expected to cut rates again despite heavy beatings their currencies’ have endured of late.
Analyst polls predict South Africa will cut its 4.25% main rate by another 50 basis points. Economists stress any policy easing must be sizable if it is to offer any help to the suffering economy.
Turkey’s meeting will be even more interesting. The lira has plunged to record lows, hard currency reserves are dwindling and inflation is in the double digits, yet all that probably won’t deter the central bank from lopping another 50-100 basis points off its 8.75% repo rate.
Zacks #1 Rank (STRONG BUY) Stocks
Taiwan Semi (TSM - Free Report) : This is a $270B market cap chip monster, with shares priced at just under $50 each. I see a Zacks Value score of B, a Zacks Growth score of C, and a Zacks Momentum score of D.
This is a U.S. election year. The company just announced a new chip plant located in Arizona. Still, it is good to see a major chip company in our top list of stocks.
Peloton (PTON - Free Report) : This is now a $12.6B market cap stock, with shares priced at $48 each. I see a Zacks Value score of F, a Zacks Growth score of C, and a Zacks Momentum score of D.
Let me see. Do I buy Taiwan Semi or Peloton, for the exact same price? LOL. I am a seller here. Shutdowns are ending. A sustained competitive advantage is not clear. The “Stay-at-Home” stocks are going to get faded.
AngloGold Ashanti (AU - Free Report) : This is a $10.8B market cap South African gold miner, with shares priced around $28 each. I see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of B.
Why does no one want a stock like this? Coronavirus is ripping thru emerging market populations. What happened to meatpackers can happen to gold miners. “Seen one, seen ‘em all!” Gold bulls shall talk up the Fed money printing. That’s an old, new story.
Key Global Macro
On Monday, Japan will officially enter technical recession on Sunday evening (ET time) when it releases Q1 GDP. That likely shrinks by over -1% for a 2nd consecutive quarter.
The U.S. NAHB housing index comes out. I see consensus has a low 33.0 mark.
On Tuesday, the latest Eurozone ZEW sentiment indexes come out. Eurozone economic sentiment rests miserably at 25.2.
The German ZEW indexes get refreshed too. Germany’s current situation index rests at -91.5. Germany’s economic sentiment index is at 28.2, just a tad above the Eurozone.
Chair Powell testifies before the Senate Banking Committee about the CARES Act (Coronavirus, Aid, Relief and Economic Security).
The Bank of Indonesia likely cuts policy rates 25 bps, from 4.5% to 4.25%.
On Wednesday, minutes to the FOMC meeting on February 28th - 29th come out.
The Bank of Thailand will cut rates 25 bps, from 0.75% to 0.50%.
U.S. housing starts should be 960K and building permits at 1M in fresh shutdown-driven data.
On Thursday, Powell speaks again at a “Fed Listens” event on the community effects of COVID-19.
Just before he does so, Vice Chair Clarida will deliver an on-line address about the U.S. economic outlook and monetary policy.
U.S. existing home sales should be down -16.5% m/m.
Initial U.S. claims should go up by another 2.5M this week.
On Friday, Eurozone PMI’s come out. A Eurozone GDP ‘nowcast’ model that uses PMIs to estimate GDP growth presently estimates that region’s economy shrank by 7–8% in Q2 at a seasonally adjusted but non-annualized rate, or over -30% annualized.
U.K. PMIs come out, as do U.K. retail sales. A PMI-based ‘nowcast’ model of U.K. GDP growth presently estimates Q2 U.K. GDP at around -7% q/q at a seasonally adjusted but non-annualized rate.
The U.S. bond market will close early, ahead of the May 25th Memorial Day holiday.
Conclusion
With the initial pandemic surprise, shock, and panic over, and shutdowns getting lifted, the question must be raised.
Did you buy stocks?
Saudi Arabia’s sovereign wealth fund did.
The Financial Times stated this: They snapped up stakes worth at least $7.7 billion in U.S. and European blue-chip companies during the first three months of the year.
The largest investments by the Public Investment Fund, chaired by Crown Prince Mohammed bin Salman, include a holding in U.K. energy major BP worth $827.8 million, and a stake in Boeing, valued at $713.6 million at the end of March, according to a U.S. regulatory filing.
These investors aggressively hunted down assets at knockdown prices during the coronavirus pandemic.
Happy Trading!
Warm Regards,
John Blank
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 >>