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Global Supply Chain Problems Persist: Global Week Ahead
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According to Zacks Director of Research Sheraz Mian, one big takeaway from Q3 earnings reports was company-specific color, on global supply chain problems.
Here is what he wrote on that—
“The large-cap stock market has been focused on the rising cost of inputs, labor costs, and other supply chain issue for the last few months.
“There was tangible nervousness in the market ahead of the start of the Q3 earnings season. These headwinds would start weighing on corporate profits through compressed margins.
“We did see some of that this earnings season.
“Companies like Brinker International (EAT - Free Report) struggled to effectively deal with higher input and labor costs.
"Even mighty Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) came up short in their quarterly reports as a result of these developments.
- Supply-chain issues were behind Apple’s revenue miss, with the logistical challenge shaving an estimated $6 billion from the company’s Q3 revenue.
- Higher expenses prompted Amazon to cut 2021 Q4 guidance, with the company outlining $6 billion in incremental higher outlays, of which $2 billion was on account of labor cost inflation.
“But many other companies have been able to pass on higher costs to the end consumer.
“While unfavorable costs may not have had as much negative impact on earnings as many feared --ahead of the Q3 reporting cycle-- they remain a risk to long-term earnings.
“Reuters’ key global issues (away from COVID and the USA) are the following.
- Chinese developer Evergrande has dodged default for the third time in a month but it is unlikely China's broader economy can avoid damage from the property sector malaise. Upcoming data might show just how bad it is.
- December's Bank of England meeting will be a "live" one may be determined by British data, especially on jobs.
- Finally, Turkey, defying near-20% inflation, seems set to cut interest rates again.”
Next, I list Reuters’ five world market themes, reordered for equity traders.
(1) The World vs. COVID
The war against COVID-19 is not over. Germany is battling record-high new cases, New Zealand is fighting off the highly infectious Delta variant and the Netherlands could soon impose a partial lockdown.
However, the United States feels confident enough to ease travel restrictions. Japan on Nov. 7 recorded no daily COVID deaths for the first time in over a year.
Developed countries are already lining up to secure a new antiviral pill that shows promising efficacy in some trials. Economists compiling 2022 economic forecasts will be watching closely.
Tesla (TSLA - Free Report) shares, whipsawed after co-founder Elon Musk asked Twitter users whether he should sell a 10% stake in the electric car firm, are in focus.
Nearly 58% of respondents to the poll backed a sale of the shares and according to stock market filings, Musk has sold about $5 billion of shares over recent days.
Tesla had an eye-watering run in October, its market value past $1 trillion. It accounts for about 2.1% of the S&P 500's roughly $4 trillion market cap versus 1.8% when Tesla joined the index almost a year ago.
Markets are also watching for news on whether Jerome Powell will be renominated as Federal Reserve Chief. Powell and Fed Governor Lael Brainard, a possible successor, were recently spotted at the White House.
(3) Key U.K. Macro Data Out This Week
After stunning markets on Nov. 4th by not delivering a widely anticipated rate rise, the Bank of England said it wanted more evidence of labor market improvement. Two sets of data are due before its next meeting, the first on Tuesday.
Following good numbers for September, October jobs data will show if unemployment rose after the Sept. 30 expiry of a pandemic-time wage subsidy scheme that one million people were estimated to be on.
Inflation and retail sales data are out Wednesday and Friday respectively. A big inflation print alongside another retail sales decline will force the BoE to choose whether to act against inflation or nurture the fragile economy.
With an economy 0.6% smaller below pre-pandemic levels and risks growing of a damaging confrontation with the EU, a rate rise is the last thing Britain needs. But 4%-plus inflation may leave the BoE no option.
(4) Mainland China Consumption Data Out
Eleventh hour payments of overdue interest are helping China Evergrande squeak clear of default; the latest one has momentarily staunched bleeding in credit markets.
It is cold comfort as investors count the cost of a crippled property sector on China's economy. Demand worries have pounded iron ore prices but despite signs of economic slowdown, the hoped-for policy easing is yet to meaningfully arrive.
Home price data on Monday showed values slowed month over month, -40 basis points to 3.4% — the weakest rise in new home prices since January 2016. The outlook isn't bright if desperate developers flood the market with discounted stock.
It bodes ill for a sector comprising a quarter of the world's No 2 economy. It's also a bad omen for consumption, seen slowing down in figures due Monday.
(5) Turkey’s Central Bank Meets on Thursday
Turkey's central bank meets on Thursday. Although its currency has stumbled from record low to record low and inflation stands at around 20%, policymakers are expected cut rates further from the current 16% level, prioritizing growth over price pressures.
Yet the sinking lira, flirting precariously with the 10 to the dollar level, could spell trouble for an economy heavily dependent on energy imports -- with firms and the government having a chunk of outstanding hard currency debt.
Turkey is a loner among global central banks that have already or are about to enter tightening cycles. South Africa's central bank, also meeting on Thursday, is seen embarking on hikes soon while Indonesian is expected to hold rates the same day. Hungary is seen shifting hikes up a gear on Tuesday.
Zacks #1 Rank (STRONG BUY) Stocks
The stocks momentum traders continue to favor are tech stocks.
Take a look at the first two chip stocks’ metrics below, relative to the third stock.
(1) Infineon Technologies (IFNNY - Free Report) : This is a $48 a share semiconductor industry stock, with a market cap of $61.8B. I see a Zacks Value score of F, a Zacks Growth score of F and a Zacks Momentum score of A.
(2) Xilinx : This is a $209 a share semiconductor-programmable logic stock, with a market cap of $51.8B. I see a Zacks Value score of F, a Zacks Growth score of F and a Zacks Momentum score of D.
(3) AP Moller-Maersk (AMKBY - Free Report) : This is a $15 a share global shipper stock, with a market cap of $61.8B. I see a Zacks Value score of A, a Zacks Growth score of B and a Zacks Momentum score of AS.
The physical economy stocks like global shippers? Nah!
Key Global Macro
On Monday, the Empire State manufacturing index for NOV is out. 19.8 was the number printed in the prior month. A rise to 20.2 is what to expect.
The RBA’s Lowe gives a speech.
The U.K. unemployment rate is 4.5%. We get a fresh reading. 4.5% holding on is what to expect.
On Tuesday, U.S. retail sales for October are out. Look for a +0.7% rise m/m, and ex-autos, look for a +0.8% m/m rise.
Euro-area real GDP growth for Q3 should be +2.2%.
The U.K. Producer Price Index (PPI) should be up +6.8% y/y in October.
On Wednesday, U.S. building permits (1.59m prior) and starts (1.56m prior) are out for October.
Canada’s CPI should be up +4.4% y/y. Similar to the USA.
On Thursday, weekly U.S. initial jobless claims are out. These continue to trend lower, week after week.
The Euro-area’s CPI should be up +4.1% y/y.
On Friday, the ECB’s LaGarde gives a speech.
The Fed’s Clarida also gives a speech.
Conclusion
Take global supply chain problems seriously.
But also remember: traders look 12 months ahead.
Stocks that are hurting from global supply chain issues will start rising; well below the resolution of those problems are discussed by analysts and news publication.
Many of those stocks are already rising.
That’s it for me.
Warm Regards,
John Blank
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Global Supply Chain Problems Persist: Global Week Ahead
According to Zacks Director of Research Sheraz Mian, one big takeaway from Q3 earnings reports was company-specific color, on global supply chain problems.
Here is what he wrote on that—
“The large-cap stock market has been focused on the rising cost of inputs, labor costs, and other supply chain issue for the last few months.
“There was tangible nervousness in the market ahead of the start of the Q3 earnings season. These headwinds would start weighing on corporate profits through compressed margins.
“We did see some of that this earnings season.
“Companies like Brinker International (EAT - Free Report) struggled to effectively deal with higher input and labor costs.
"Even mighty Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) came up short in their quarterly reports as a result of these developments.
“But many other companies have been able to pass on higher costs to the end consumer.
“While unfavorable costs may not have had as much negative impact on earnings as many feared --ahead of the Q3 reporting cycle-- they remain a risk to long-term earnings.
“Reuters’ key global issues (away from COVID and the USA) are the following.
Next, I list Reuters’ five world market themes, reordered for equity traders.
(1) The World vs. COVID
The war against COVID-19 is not over. Germany is battling record-high new cases, New Zealand is fighting off the highly infectious Delta variant and the Netherlands could soon impose a partial lockdown.
However, the United States feels confident enough to ease travel restrictions. Japan on Nov. 7 recorded no daily COVID deaths for the first time in over a year.
Developed countries are already lining up to secure a new antiviral pill that shows promising efficacy in some trials. Economists compiling 2022 economic forecasts will be watching closely.
(2) Watching Elon Musk Profit, Jerome Powell Sweat
Tesla (TSLA - Free Report) shares, whipsawed after co-founder Elon Musk asked Twitter users whether he should sell a 10% stake in the electric car firm, are in focus.
Nearly 58% of respondents to the poll backed a sale of the shares and according to stock market filings, Musk has sold about $5 billion of shares over recent days.
Tesla had an eye-watering run in October, its market value past $1 trillion. It accounts for about 2.1% of the S&P 500's roughly $4 trillion market cap versus 1.8% when Tesla joined the index almost a year ago.
Markets are also watching for news on whether Jerome Powell will be renominated as Federal Reserve Chief. Powell and Fed Governor Lael Brainard, a possible successor, were recently spotted at the White House.
(3) Key U.K. Macro Data Out This Week
After stunning markets on Nov. 4th by not delivering a widely anticipated rate rise, the Bank of England said it wanted more evidence of labor market improvement. Two sets of data are due before its next meeting, the first on Tuesday.
Following good numbers for September, October jobs data will show if unemployment rose after the Sept. 30 expiry of a pandemic-time wage subsidy scheme that one million people were estimated to be on.
Inflation and retail sales data are out Wednesday and Friday respectively. A big inflation print alongside another retail sales decline will force the BoE to choose whether to act against inflation or nurture the fragile economy.
With an economy 0.6% smaller below pre-pandemic levels and risks growing of a damaging confrontation with the EU, a rate rise is the last thing Britain needs. But 4%-plus inflation may leave the BoE no option.
(4) Mainland China Consumption Data Out
Eleventh hour payments of overdue interest are helping China Evergrande squeak clear of default; the latest one has momentarily staunched bleeding in credit markets.
It is cold comfort as investors count the cost of a crippled property sector on China's economy. Demand worries have pounded iron ore prices but despite signs of economic slowdown, the hoped-for policy easing is yet to meaningfully arrive.
Home price data on Monday showed values slowed month over month, -40 basis points to 3.4% — the weakest rise in new home prices since January 2016. The outlook isn't bright if desperate developers flood the market with discounted stock.
It bodes ill for a sector comprising a quarter of the world's No 2 economy. It's also a bad omen for consumption, seen slowing down in figures due Monday.
(5) Turkey’s Central Bank Meets on Thursday
Turkey's central bank meets on Thursday. Although its currency has stumbled from record low to record low and inflation stands at around 20%, policymakers are expected cut rates further from the current 16% level, prioritizing growth over price pressures.
Yet the sinking lira, flirting precariously with the 10 to the dollar level, could spell trouble for an economy heavily dependent on energy imports -- with firms and the government having a chunk of outstanding hard currency debt.
Turkey is a loner among global central banks that have already or are about to enter tightening cycles. South Africa's central bank, also meeting on Thursday, is seen embarking on hikes soon while Indonesian is expected to hold rates the same day. Hungary is seen shifting hikes up a gear on Tuesday.
Zacks #1 Rank (STRONG BUY) Stocks
The stocks momentum traders continue to favor are tech stocks.
Take a look at the first two chip stocks’ metrics below, relative to the third stock.
(1) Infineon Technologies (IFNNY - Free Report) : This is a $48 a share semiconductor industry stock, with a market cap of $61.8B. I see a Zacks Value score of F, a Zacks Growth score of F and a Zacks Momentum score of A.
(2) Xilinx : This is a $209 a share semiconductor-programmable logic stock, with a market cap of $51.8B. I see a Zacks Value score of F, a Zacks Growth score of F and a Zacks Momentum score of D.
(3) AP Moller-Maersk (AMKBY - Free Report) : This is a $15 a share global shipper stock, with a market cap of $61.8B. I see a Zacks Value score of A, a Zacks Growth score of B and a Zacks Momentum score of AS.
The physical economy stocks like global shippers? Nah!
Key Global Macro
On Monday, the Empire State manufacturing index for NOV is out. 19.8 was the number printed in the prior month. A rise to 20.2 is what to expect.
The RBA’s Lowe gives a speech.
The U.K. unemployment rate is 4.5%. We get a fresh reading. 4.5% holding on is what to expect.
On Tuesday, U.S. retail sales for October are out. Look for a +0.7% rise m/m, and ex-autos, look for a +0.8% m/m rise.
Euro-area real GDP growth for Q3 should be +2.2%.
The U.K. Producer Price Index (PPI) should be up +6.8% y/y in October.
On Wednesday, U.S. building permits (1.59m prior) and starts (1.56m prior) are out for October.
Canada’s CPI should be up +4.4% y/y. Similar to the USA.
On Thursday, weekly U.S. initial jobless claims are out. These continue to trend lower, week after week.
The Euro-area’s CPI should be up +4.1% y/y.
On Friday, the ECB’s LaGarde gives a speech.
The Fed’s Clarida also gives a speech.
Conclusion
Take global supply chain problems seriously.
But also remember: traders look 12 months ahead.
Stocks that are hurting from global supply chain issues will start rising; well below the resolution of those problems are discussed by analysts and news publication.
Many of those stocks are already rising.
That’s it for me.
Warm Regards,
John Blank