In the Global Week Ahead, risk market actors are keen to trade policy rate cuts.

The big central banks are pushing back.

That vital tug-of-war will be shining a new light on upcoming CPI data.

In Europe, it is Italy's turn to be in the eye of the bond ratings agencies.

In the Asia-Pacific region, Mainland China continues to battle its property demons.

Next are Reuters’ five world market themes, reordered for equity traders—

(1) Tuesday at 8:30 am ET, traders get the OCT U.S. CPI data.

A slew of Federal Reserve policymakers including boss Jerome Powell say they are still not sure that rates are high enough to finish the battle with inflation.

Traders, anticipating roughly three quarter-point Fed rate cuts next year, will now turn their attention to Tuesday's inflation data to confirm their view on the outlook.

The October Consumer Price Index (CPI) is expected to have climbed +0.1% on a monthly basis, according to a Reuters poll. September's CPI rose +0.4% on a surprise surge in rental costs, but also showed a moderation in underlying inflation pressures.

A sharper cooling could fan the peak rate talk, fueled by October's employment report, which pointed to an easing in labor markets.

A federal government shutdown looms, meanwhile, if lawmakers in Washington are unable to pass a measure to at least temporarily fund operations before a Nov. 17th deadline.

Fresh wrangling could renew concerns about governance in the world's biggest economy.

(2) Will the U.S. Dollar trade higher or lower? There’s a big trader battle here.

The robust U.S. dollar suddenly appears vulnerable to the push-and-pull in the market's Fed rate cut bets.

A bounce thanks to Fed Chief Powell pushing back on talk that rates have peaked may not last as U.S. dollar bears grow confident that rate cuts are likely next year.

Take the latest Reuters poll: nearly two-thirds of analysts say the U.S. dollar is likely to trade lower by year-end.

Long U.S. dollar positions are decreasing. SocGen reckons dollar/yen could fall back to around 145-150 after trading as high as 151.74 recently.

Rate-cut talk is U.S. dollar-negative, but a sharply slowing U.S. economy that hurts the world could quickly bring back demand for the safe-haven currency.

(3) Italian debt on Moody’s and Fitch’s watch for a downgrade. Here we go again.

Italy is back on the worry list with many investors concerned about growing fiscal risks steering clear of big exposure to the Eurozone's third-largest economy.

Moody's, which rates Italy just one notch above junk with a negative outlook, reviews the sovereign on Nov. 17th. Fitch's latest review is due after Friday's market close.

A Moody's downgrade is the bigger risk given its Italy outlook, and such a move could see the closely-watched 10-year bond yield gap over Germany pop to 250 bps, with potential ramifications across the periphery.

Italian stocks, meanwhile, are trading at a 50% discount to world stocks, the widest gap since 1988.

There is a silver lining. Stronger balance sheets mean banks are less vulnerable to bond turmoil than in the past, and with parts of the equity market so deeply discounted, some see a buying opportunity that cannot be ignored.

(4) Wednesday has U.K. Consumer Price Inflation data. It’s been hotter than most.

U.K. inflation has been stickier than in most developed economies.

That is bad news for consumers, the Bank of England, and Prime Minister Rishi Sunak, who pledged at the start of 2023 to halve inflation, then running at over +10%, by year end.

October CPI data, due on Wednesday, will show whether Sunak is starting to get close to that goal. A fall from September's +6.7% is likely, but by how much?

The data could also help justify — or challenge — recent remarks from BoE Chief Economist Huw Pill that mid-2024 could be the time for rate cuts. Latest British jobs figures, retail sales and the Producer Price Index are also on the calendar.

Eurozone flash third-quarter GDP data out on Tuesday is in focus given signs of economic weakness in Germany, the bloc's largest economy, and described by some this year as the "sick man of Europe.”

(5) Wednesday offers Mainland China retail sales and industrial production data.

The question of who will be left holding the bag filled with China's property mess may have gone some way to being answered, much to the chagrin of Ping An shareholders.

Reuters reports that Beijing asked the insurer to take control of ailing Country Garden, China's biggest private developer.

Ping An shares dived to one-year lows, in spite of the company's denials. Worries about the sector continue to weigh.

Government measures to shore up the economy have repeatedly fallen flat this year, which has not deterred China's central bank from professing the 5% growth target can be achieved, a view the IMF shares.

Data has pointed the other way, with more evidence of slowing factories and tepid consumption.

Markets will see Wednesday if that trend continues, with October retail sales and industrial production data.

Zacks #1 Rank (STRONG BUY) Stocks

(1) JP Morgan Chase (JPM Quick QuoteJPM - Free Report) : This is a $144 Major Bank industry stock with a market cap of $418.4B. I see a Zacks Value score of F, a Zacks Growth score of F and a Zacks Momentum score of C.
 

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Headquartered in New York, JPMorgan Chase & Co. is one of the biggest global banks with assets worth $3.9 trillion and stockholders’ equity worth $317.4 billion as of Sep 30, 2023. With operations in more than 60 countries, the company (incorporated under Delaware law in 1968) is one of the largest financial service firms in the world.

JPMorgan organizes its business through following five reportable segments:

Consumer & Community Banking (CCB) segment (constituting 41.6% of total net revenues in 2022) serves consumers and businesses through personal service at bank branches and through automated teller machine (ATMs), online, mobile and telephone banking. CCB is organized into Consumer & Business Banking, Mortgage Banking, and Card & Auto.

Corporate & Investment Bank (CIB) segment (36.2%) offers a wide range of IB, market-making, prime brokerage, and wholesale payments services to a global client base of corporations, investors, financial institutions, government and municipal entities.

Commercial Banking (CB) segment (8.7%) provides lending, wholesale payments, and investment banking services to corporations, municipalities, financial institutions and non-profit entities.

Asset & Wealth Management (AWM) segment (13.4%) provides services to institutions, retail investors and high-net-worth individuals. It offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity including money market instruments and bank deposits. The segment also offers trust and estate, banking and brokerage services.

Corporate segment (0.1%) consists of Treasury & Chief Investment Office (CIO) and Other Corporate, which includes corporate staff units and centrally managed expenses.

(2) Toyota Motor (TM Quick QuoteTM - Free Report) : This is a $184 Foreign Auto industry stock with a market cap of $248.5B. I see a Zacks Value score of A, a Zacks Growth score of C and a Zacks Momentum score of C.
 

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Founded in 1973, Japan-based Toyota Motor Corp. is one of the leading automakers in the world in terms of sales and production.

Its product portfolio consists of a full range of models from passenger cars and minivans to trucks as well as related parts and accessories.

Apart from combustion-engine vehicles, the company is also working on fuel cell and automated vehicles. It plans to offer a committed electrified model or an electrified option for customers of Toyota or Lexus models by 2025.

The company’s operations are classified into three segments — Automotive (91% of net revenues from external customers in fiscal 2023), Financial Services (7.5%) and All Other (3.3%).

Toyota’s Automotive business caters to its domestic market as well as markets in North America, Europe, Asia and other regions that include the Middle East. Toyota has R&D centers across the United States, Japan, China and Europe that are used to develop advanced and upgraded vehicles. Further, the company has several manufacturing facilities across the globe that produces vehicle brands — including Toyota, Lexus, Hino and Daihatsu as well as automobile components.

Toyota’s Financial Services business primarily finances dealers and customers for the purchase or lease of Toyota vehicles. The business also offers retail leasing through the purchase of lease contracts originated by Toyota dealers.

Toyota’s All Other business segment comprises the design and manufacture of prefabricated housing and information technology-related businesses, including an e-commerce platform called GAZOO.com.

In fiscal 2023, Toyota’s consolidated retail unit sales totaled 10,558,000 units, marking an increase from 10,381,000 units sold in fiscal 2022. The automaker’s vehicle sales in all the major end markets served increased on a year-over-year basis.

During the fiscal year, Toyota’s revenues rose 18.4% year over year to ¥37 trillion. However, the company’s operating income declined 9% year over year to ¥2.7 trillion.

(3) Petroleo Brasileiro (PBR Quick QuotePBR - Free Report) : This is a $15 Emerging Markets Oil & Gas industry stock with a market cap of $97.6B. I see a Zacks Value score of A, a Zacks Growth score of C and a Zacks Momentum score of F.
 

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Headquartered in Rio de Janeiro, Petroleo Brasileiro S.A., or Petrobras S.A., is the largest integrated energy firm in Brazil and one of the largest in Latin America.

The company’s activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks, as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.

The company operates in five segments:

Exploration and Production (E&P): This segment – which makes up 35% of Petrobras' total sales – includes the company’s domestic E&P operations, mostly located in the offshore Campos Basin, which is Brazil's largest oil region and is one of the most prolific oil and gas areas in South America.

Refining, Transportation and Marketing: This segment (57%) houses the company’s domestic refining, transportation and marketing assets. Petrobras owns and operates 12 refineries in Brazil and 3 refineries outside Brazil.

Distribution: This segment is engaged in the distribution of oil products, fuel alcohol, and natural gas to retail, commercial, and industrial customers throughout Brazil.

Gas and Power: This segment is engaged in gas transmission and distribution, electric power generation using natural gas and renewable energy sources and biofuels operations in Brazil. Petrobras has a total of 7,028 megawatts (MW) of installed capacity.

Biofuels: The unit deals with renewable energy programs, including biodiesel, agricultural supplies, vegetable oil extraction and ethanol. Petrobras provides more than 10% of Brazil’s biodiesel and also acts as a market catalyst by securing and blending biodiesel supplies and providing these to smaller distributors in addition to the company’s own service stations.

At the end of 2022, Petrobras had net debt of $41,516 million. The company ended the year with cash and cash equivalents of $7,996 million. For full-year 2022, free cash flow was up 28% to $40,136 million.

Key Global Macro

This week, traders will focus on Tuesday morning’s U.S. CPI data.

On Monday, the European Commission releases Economic Growth forecasts.

On Tuesday, the OCT U.S. CPI data hits the tape at 8:30 am ET.  Broad CPI y/y was +3.7% in SEP, the core CPI y/y was +4.1% in SEP. The consensus is looking for +4.1% m/m for the core CPI, a +0.3% m/m OCT gain.

Eurozone Q3 real GDP could be +0.1% y/y, the same as in Q2. Flat!

On Wednesday, Mainland China’s industrial production should be +4.5% y/y in OCT, the same as in SEP.

Mainland China’s retail sales can rise to +7.0% y/y in OCT, higher than a +5.5% y/y number in SEP. This retail sales gain is worth noting.

The U.K.’s core CPI rate should be +5.8% y/y in OCT, falling from a +6.1% y/y reading in SEP. The U.K.’s broad CPI rate shows +6.7% y/y in SEP.

Industrial production for the Eurozone in SEP should be out, I see a prior reading at -5.1% y/y. Not good!

U.S. retail sales for OCT should be down -0.1% in the broad and up +0.1% ex-autos, after a +0.7% m/m print for the broad and +0.6% m/m for the core in SEP. School is back in session.

On Thursday, the Australian household unemployment rate should be 3.7% in OCT, after a 3.6% print in SEP.

U.S. initial jobless claims are still quite low. The latest weekly reading was 212.5K.

U.S. industrial production for OCT should be down -0.4% m/m after a +0.3% m/m reading in SEP.

On Friday, U.K. retail sales for OCT come out. I see a -1.0% y/y prior print. Flat!

The Eurozone’s harmonized index of consumer prices (HICP) for OCT. The broad HICP should be +2.9% y/y in OCT, the same mark was seen in SEP. The core HICP should be +4.2% y/y, the same mark seen in SEP too.

Conclusion

Much like all the traders out there, I will be focusing on the Tuesday morning U.S. CPI reading.

That’s it for me.

Regards,

John Blank
Zacks Chief Equity Strategist and Economist