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In the global week ahead, the major market-relevant event is a U.S. Fed meeting.
We get their take on tumult on Wednesday. Powell’s presser lands at 2 pm ET.
Federal Open Market Committee (FOMC) members also update their infamous ‘dot plot’ projections for the first time since the COVID19 shock.
For those who are not deeply familiar with the comic strip character of Captain America, I can provide the historic background.
This is a fictional superhero appearing in American comic books, published by Marvel Comics. The character first appeared in Captain America Comics in March 1941.
Captain America was designed as a patriotic super-soldier who often fought the Axis powers of World War II, and was Timely Comics' most popular character during the wartime period.
The popularity of superheroes waned following the war, and the Captain America comic book was discontinued in 1950, with a short-lived revival in 1953.
Once Marvel Comics revived the character in 1964, Captain America has remained in publication.
With the Fed juicing markets with a fresh $3.0T in liquidity during the pandemic, the title of this week’s Global Week Ahead seemed appropriate.
Here are Reuters’ five world market themes, reordered for equity traders:
(1) Euro Traders Are Bullish
If nine straight days of gains for the euro and the tightest Italy/Germany bond spreads in over two months are anything to go by, investors are a whole lot more confident in the Eurozone outlook compared with a few weeks ago.
After an initial slow and divided response by politicians and an unfortunate comment on bond spreads from the ECB chief, European authorities suddenly found their feet — a recovery fund with some form of fiscal burden sharing is taking shape, Germany has agreed more fiscal spending and the ECB has added 600 billion euros to its emergency stimulus.
Further euro gains and tighter bond spreads appear likely, as does a selloff in German bonds as demand for safe havens wanes. The road ahead is long, no doubt. Yet for the first time in years, euro bulls have reason to hope.
(2) The Dry Powder on Corporate Balance Sheets May Go to Work
By denting boardroom confidence and ravaging balance sheets, the coronavirus crisis brought a multi-year deal-making boom to a halt: Global M&A activity has plunged 43% this year while global private equity buyouts are down 27%, Refinitiv data shows.
But European M&A activity is bucking the trend with a 12% rise, thanks to some mega-deals such as a 24 billion-pound merger of mobile operators O2 and Virgin Media.
True, the number of announced transactions is 33% below year-ago levels, but bankers see this changing as private equity funds sniff around for troubled businesses in need of cash injections or for resilient listed firms.
A consortium of KKR, Cinven and Providence has just launched a 2.96 billion-euro bid for Spanish telecoms operator MasMovil — Europe’s first take-private attempt since the crisis struck. CVC Capital Partners is in talks with Italy’s Serie A to invest up to 2.2 billion euros into the soccer league’s broadcasting rights business, sources say.
Expect more deals if market confidence continues to build.
(3) There Is a June 9-10 Fed Meeting
The U.S. Fed might be watching the steepening Treasury yield curve with trepidation. The steepening — when longer-dated yields rise faster than short-tenor ones — signals a brighter growth outlook. But too fast a rise in borrowing costs can strangle economic recovery.
After the June 9-10 FOMC meeting, investors will listen for the Fed’s views on the economic outlook; an upbeat tone could further feed the stocks rally and trigger Treasury selling.
That may train more attention on the curve; the 5-year/30-year segment is at the steepest since end-2017, rising around 30 bps in the past month.
Few expect Fed action this month, but it may well signal additional bond-buying or yield curve control measures ahead.
(4) What Happens to U.S. Special Treatment for Hong Kong?
Have HSBC and Standard Chartered “chosen profits over human rights” in backing China’s national security law for Hong Kong, as some suggest? Or does it reflect the tightrope businesses must navigate between Hong Kong’s protesters and Beijing?
U.S. special treatment for Hong Kong is now in doubt as is the city’s role as a finance hub. Its position as a major goods trading center will be threatened if wares become subject to the higher import tariffs paid in mainland China or if U.S. imports no longer enjoy zero rates.
One silver lining may be more IPOs by Chinese firms ditching their New York listings or mainland newcomers debuting in Hong Kong rather than on Nasdaq.
But as Beijing tightens its grip, an American Chamber of Commerce survey showed 30% of respondents were considering moving capital, assets or business operations. Heed Western warnings or stick with Beijing? It’s a choice more companies will have to make.
(5) Keep an Eye on Chinese Trade Data
Who’s buying? That’s the question being asked of China’s factories whose output is back to levels seen before the coronavirus crisis shunted or shut down most of the global manufacturing supply chain.
Sunday’s trade data should confirm that global demand for stuff being cranked out by the world’s biggest factory remains weak. But any rise in imports, if driven by cheaper oil or raw material purchases, would feed fears of an inventory build-up and worries that manufacturers have been politically pressured to produce.
The coming days might be when investors begin suspecting China will not have any growth this year. That will lead them to gauge how bullish stock markets will react as the unstoppable force of Chinese production runs into an impregnable global downturn.
Top Zacks #1 Rank (STRONG BUY) Stocks
These three Zacks #1 Rank stocks also had the trifecta of long-term Zacks score I was looking for—
(1) RELX PLC (RELX - Free Report) : This is a $47B market cap stock with a $24 share price.
I see a Zacks Value score of B, a Zacks Growth score of A, and a Zacks Momentum score of B.
RELX PLC is engaged in providing information solutions. Its products and services comprise intellectual property content delivered through various media, including online, journals and books. The Company's operating segments consists of Scientific, Technical & Medical, Risk & Business Information; Legal and Exhibitions.
RELX PLC, formerly known as Reed Elsevier PLC, is based in London, UK.
(2) Dollar General (DG - Free Report) : This is a $46.7B market cap stock with a hefty $185 share price.
I see a Zacks Value score of B, a Zacks Growth score of A and a Zacks Momentum score of A.
Founded in 1939 and headquartered in Goodlettsville, TN, Dollar General is one of the largest discount retailers in the United States. The company trades in low priced merchandise typically $10 or less.
(3) BJs Wholesale Club (BJ - Free Report) : This is a $4.8B market cap stock with a nearly $35 share price.
I see a Zacks Value score of A and a Zacks Growth score of A and a Zacks Momentum score of B.
BJ's Wholesale Club is an operator of membership warehouse clubs primarily in the Eastern United States.
The company operates clubs and BJ's Gas locations in states. It provides shopping destinations which includes exclusive Wellesley Farms and Berkley Jensen brands, along with USDA Choice meats, premium produce and delicious organics.
BJ's Wholesale is based in Westborough, MA.
Key Global Macro
The main U.S. event this week?
It will be the degree to which the U.S. Fed comes across as encouraged by nascent signs of recovery, relative to the risk it perceives in markets getting ahead of themselves.
Outside the U.S., OPEC has agreed to a one-month extension of production cuts.
On Monday, inspect the Chinese trade figures that arrived over the weekend. Annual exports are set for -6.5% y/y. Imports are looking for -7.9% y/y.
On Tuesday, Euro Area GDP for Q1 should be -3.8%.
On Wednesday, the FOMC will meet on Tuesday and Wednesday. It will culminate in the statement on Wednesday at 2pm ET that will be accompanied by the Fed’s first foray into forecasting the economy and updating its dot plot since the COVID-19 shock—indeed since December 2019.
The U.S. CPI comes out. May should be coming up with a +0.3% y/y reading.
On Thursday, U.S. industrial production figures come out. -3.4% was the prior month’s reading.
Peru’s central bank should leave their policy rate at 0.25%.
On Friday, the University of Michigan consumer sentiment index comes out. 72.3 may rise to 75.3 this time around.
Euro Area industrial production comes out. The prior reading was -111.3%. Look for a -20.0% print to follow it.
Conclusion
With the Euro rising in value, the idea of the Old Continent emerging as a global recovery hot spot is a key theme for all of June.
As long as the big money is flowing, day-after-day, back into Europe, there is optimism.
In the week ahead, I also think the U.S. Fed meeting will be excellent fodder for the quantitative macro experts and the financial journalists out there.
Nobody really has a clean idea on GDP growth rates, or the time series of household unemployment rates to expect, over the next six or eight quarters.
This is the Fed’s critical product offering, along with the color provided by Chair Powell.
It will be consumed widely later this week.
Have a great trading week!
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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The Fed as Captain America: Global Week Ahead
In the global week ahead, the major market-relevant event is a U.S. Fed meeting.
For those who are not deeply familiar with the comic strip character of Captain America, I can provide the historic background.
This is a fictional superhero appearing in American comic books, published by Marvel Comics. The character first appeared in Captain America Comics in March 1941.
Captain America was designed as a patriotic super-soldier who often fought the Axis powers of World War II, and was Timely Comics' most popular character during the wartime period.
The popularity of superheroes waned following the war, and the Captain America comic book was discontinued in 1950, with a short-lived revival in 1953.
Once Marvel Comics revived the character in 1964, Captain America has remained in publication.
With the Fed juicing markets with a fresh $3.0T in liquidity during the pandemic, the title of this week’s Global Week Ahead seemed appropriate.
Here are Reuters’ five world market themes, reordered for equity traders:
(1) Euro Traders Are Bullish
If nine straight days of gains for the euro and the tightest Italy/Germany bond spreads in over two months are anything to go by, investors are a whole lot more confident in the Eurozone outlook compared with a few weeks ago.
After an initial slow and divided response by politicians and an unfortunate comment on bond spreads from the ECB chief, European authorities suddenly found their feet — a recovery fund with some form of fiscal burden sharing is taking shape, Germany has agreed more fiscal spending and the ECB has added 600 billion euros to its emergency stimulus.
Further euro gains and tighter bond spreads appear likely, as does a selloff in German bonds as demand for safe havens wanes. The road ahead is long, no doubt. Yet for the first time in years, euro bulls have reason to hope.
(2) The Dry Powder on Corporate Balance Sheets May Go to Work
By denting boardroom confidence and ravaging balance sheets, the coronavirus crisis brought a multi-year deal-making boom to a halt: Global M&A activity has plunged 43% this year while global private equity buyouts are down 27%, Refinitiv data shows.
But European M&A activity is bucking the trend with a 12% rise, thanks to some mega-deals such as a 24 billion-pound merger of mobile operators O2 and Virgin Media.
True, the number of announced transactions is 33% below year-ago levels, but bankers see this changing as private equity funds sniff around for troubled businesses in need of cash injections or for resilient listed firms.
A consortium of KKR, Cinven and Providence has just launched a 2.96 billion-euro bid for Spanish telecoms operator MasMovil — Europe’s first take-private attempt since the crisis struck. CVC Capital Partners is in talks with Italy’s Serie A to invest up to 2.2 billion euros into the soccer league’s broadcasting rights business, sources say.
Expect more deals if market confidence continues to build.
(3) There Is a June 9-10 Fed Meeting
The U.S. Fed might be watching the steepening Treasury yield curve with trepidation. The steepening — when longer-dated yields rise faster than short-tenor ones — signals a brighter growth outlook. But too fast a rise in borrowing costs can strangle economic recovery.
After the June 9-10 FOMC meeting, investors will listen for the Fed’s views on the economic outlook; an upbeat tone could further feed the stocks rally and trigger Treasury selling.
That may train more attention on the curve; the 5-year/30-year segment is at the steepest since end-2017, rising around 30 bps in the past month.
Few expect Fed action this month, but it may well signal additional bond-buying or yield curve control measures ahead.
(4) What Happens to U.S. Special Treatment for Hong Kong?
Have HSBC and Standard Chartered “chosen profits over human rights” in backing China’s national security law for Hong Kong, as some suggest? Or does it reflect the tightrope businesses must navigate between Hong Kong’s protesters and Beijing?
U.S. special treatment for Hong Kong is now in doubt as is the city’s role as a finance hub. Its position as a major goods trading center will be threatened if wares become subject to the higher import tariffs paid in mainland China or if U.S. imports no longer enjoy zero rates.
One silver lining may be more IPOs by Chinese firms ditching their New York listings or mainland newcomers debuting in Hong Kong rather than on Nasdaq.
But as Beijing tightens its grip, an American Chamber of Commerce survey showed 30% of respondents were considering moving capital, assets or business operations. Heed Western warnings or stick with Beijing? It’s a choice more companies will have to make.
(5) Keep an Eye on Chinese Trade Data
Who’s buying? That’s the question being asked of China’s factories whose output is back to levels seen before the coronavirus crisis shunted or shut down most of the global manufacturing supply chain.
Sunday’s trade data should confirm that global demand for stuff being cranked out by the world’s biggest factory remains weak. But any rise in imports, if driven by cheaper oil or raw material purchases, would feed fears of an inventory build-up and worries that manufacturers have been politically pressured to produce.
The coming days might be when investors begin suspecting China will not have any growth this year. That will lead them to gauge how bullish stock markets will react as the unstoppable force of Chinese production runs into an impregnable global downturn.
Top Zacks #1 Rank (STRONG BUY) Stocks
These three Zacks #1 Rank stocks also had the trifecta of long-term Zacks score I was looking for—
(1) RELX PLC (RELX - Free Report) : This is a $47B market cap stock with a $24 share price.
I see a Zacks Value score of B, a Zacks Growth score of A, and a Zacks Momentum score of B.
RELX PLC is engaged in providing information solutions. Its products and services comprise intellectual property content delivered through various media, including online, journals and books. The Company's operating segments consists of Scientific, Technical & Medical, Risk & Business Information; Legal and Exhibitions.
RELX PLC, formerly known as Reed Elsevier PLC, is based in London, UK.
(2) Dollar General (DG - Free Report) : This is a $46.7B market cap stock with a hefty $185 share price.
I see a Zacks Value score of B, a Zacks Growth score of A and a Zacks Momentum score of A.
Founded in 1939 and headquartered in Goodlettsville, TN, Dollar General is one of the largest discount retailers in the United States. The company trades in low priced merchandise typically $10 or less.
(3) BJs Wholesale Club (BJ - Free Report) : This is a $4.8B market cap stock with a nearly $35 share price.
I see a Zacks Value score of A and a Zacks Growth score of A and a Zacks Momentum score of B.
BJ's Wholesale Club is an operator of membership warehouse clubs primarily in the Eastern United States.
The company operates clubs and BJ's Gas locations in states. It provides shopping destinations which includes exclusive Wellesley Farms and Berkley Jensen brands, along with USDA Choice meats, premium produce and delicious organics.
BJ's Wholesale is based in Westborough, MA.
Key Global Macro
The main U.S. event this week?
It will be the degree to which the U.S. Fed comes across as encouraged by nascent signs of recovery, relative to the risk it perceives in markets getting ahead of themselves.
Outside the U.S., OPEC has agreed to a one-month extension of production cuts.
On Monday, inspect the Chinese trade figures that arrived over the weekend. Annual exports are set for -6.5% y/y. Imports are looking for -7.9% y/y.
On Tuesday, Euro Area GDP for Q1 should be -3.8%.
On Wednesday, the FOMC will meet on Tuesday and Wednesday. It will culminate in the statement on Wednesday at 2pm ET that will be accompanied by the Fed’s first foray into forecasting the economy and updating its dot plot since the COVID-19 shock—indeed since December 2019.
The U.S. CPI comes out. May should be coming up with a +0.3% y/y reading.
On Thursday, U.S. industrial production figures come out. -3.4% was the prior month’s reading.
Peru’s central bank should leave their policy rate at 0.25%.
On Friday, the University of Michigan consumer sentiment index comes out. 72.3 may rise to 75.3 this time around.
Euro Area industrial production comes out. The prior reading was -111.3%. Look for a -20.0% print to follow it.
Conclusion
With the Euro rising in value, the idea of the Old Continent emerging as a global recovery hot spot is a key theme for all of June.
As long as the big money is flowing, day-after-day, back into Europe, there is optimism.
In the week ahead, I also think the U.S. Fed meeting will be excellent fodder for the quantitative macro experts and the financial journalists out there.
Nobody really has a clean idea on GDP growth rates, or the time series of household unemployment rates to expect, over the next six or eight quarters.
This is the Fed’s critical product offering, along with the color provided by Chair Powell.
It will be consumed widely later this week.
Have a great trading week!
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 >>