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Geopolitics on the Front Burner: Global Week Ahead
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In the Global Week Ahead, resilience in large cap U.S. stock index values and the exchange value of Russia's ruble to the Euro and U.S. dollar could be put to the test.
According to Reuters, as Q2 gets underway, the big macroeconomic question is when soaring global consumer price inflation rates will finally peak.
A Tuesday end to a Reserve Bank of Australia meeting, and a Wednesday release of the latest Federal Reserve minutes will provide insights on rate setters' thinking.
Next are Reuters’ five latest world market themes, reordered for equity traders:
(1) Can the S&P500 and Nasdaq continue to bounce back?
Two weeks ago, Wall Street's S&P 500 and MSCI's main world stocks index were both down -14% for the year and the Nasdaq was officially in -20% "bear" market territory.
Now? Though the war in Ukraine rages on and interest rates are on the up, the S&P 500 is back to within -5% of its all-time high, MSCI World has recovered half of its drop and the Nasdaq is down a more manageable -8%.
Analysts hope that as and when the dust settles, corporate earnings will still look okay, and that the dreaded "stagflation" scenario will be avoided. TINA, or There Is No Alternative, is still alive and well… it seems.
The next earnings season is approaching, but if the Russia-Ukraine crisis does lead to a new Iron Curtain, it might get harder for stocks to defy gravity.
(2) Is the Russian ruble rebound for real?
The ruble has staged a remarkable recovery from the record lows hit in the days following Russia's Feb. 24 invasion of Ukraine. In onshore, and offshore markets, where Western institutions trade with non-sanctioned Russian entities, the ruble is almost back to where it was in the run-up to the invasion.
The rise is partly down to capital controls that have suppressed rouble selling and artificially inflated the currency. But there is also a genuine improvement in Russia's balance of payments as imports collapse and soaring energy prices increase export revenues.
President Vladimir Putin's demand for ruble payments for gas, and whether European buyers agree, could be the next test for whether demand for the currency is real or engineered.
(3) Is this the end of the negative yielding debt era?
While the U.S. yield curve inverted, a sea change was taking place in Eurozone bond markets with German, French and Dutch two-year debt yields popping above 0% for the first time since 2014.
Yields across the bloc ended March with their biggest monthly surge in around a decade, on expectations the ECB will soon push its minus 0.5% depo rate to 0% and above.
That would be a key moment for negative-yielding debt, global volumes of which surged above $18 trillion in 2020. Savers, banks and pension funds should all benefit; risky corporate debt and emerging markets that gained from investors' "hunt for yield" may lose out.
But calling a trend change in these volatile times is not easy. Coming days could show if yield moves back above 0% are really durable.
(4) On Wednesday, the latest FOMC minutes hit the tape.
Judging by the, albeit brief, inversion of a closely watched part of the Treasury yield curve, U.S. recession risks are rising.
An inverted curve has a solid track record for predicting recessions, but how to interpret recent bond moves presents a conundrum for investors.
After the Federal Reserve's March 16th meeting offered a glowing assessment of the economic outlook, stocks are taking the bond selloff in their stride.
On Wednesday, minutes of that Fed meeting should show how policymakers view the outlook. They've already flagged bigger rate hikes to tame inflation, which is at four-decade highs. Also key would be details on how quickly the Fed might reduce its $9 trillion balance sheet, a risk some believe markets are underestimating.
(5) The Bank of Japan (BoJ) remains the most dovish major central bank.
The Bank of Japan has put its money where its mouth is, proving its position as the world's most dovish major central bank. Its standing offer to buy benchmark government bonds signals a potent defense of its yield curve control policy.
The effect of that binge is debatable: yields have only eased slightly from six-year highs, and that arguably had as much to do with U.S. Treasury yields declining from multi-year peaks.
And there's a collateral casualty of the BOJ's uber-easing: the yen, which has plumbed depths not seen since 2015. While the BOJ maintains a weaker currency is overall positive for the economy, jawboning by a queue of government officials suggests a differing view.
Australia's central bank meanwhile meets on Tuesday and while a policy change isn't expected, the bank may go further in laying groundwork for a rate hike. Markets expect one around June.
Top Zacks #1 Rank (STRONG BUY) Stocks
I still note upgrades to the outlook of Zacks Growth large-cap stocks, across a number of diverse industries.
(1) Tesla (TSLA - Free Report) : Yes, this stock is back on our #1 list. I see a share price of $1,078 and a market cap of $1.082B. The Zacks Value score is F (no surprise there), the Zacks Growth score is A (no surprise there) and the Zacks Momentum score is D (some surprise there).
(2) Advanced Micro Devices (AMD - Free Report) : This is a $109 a share stock with a market cap of $131B. I see a Zacks Value score of F, a Zacks Growth score of B and a Zacks Momentum score of C.
(3) The Kroger Co. (KR - Free Report) : Groceries are still hot. This is a $57 a share stock with a market cap of $41.4B. I see a Zacks Value score of C, a Zacks Growth score of B and a Zacks Momentum score of D.
Key Global Macro
The release of FOMC minutes is the big event, followed by the RBA meeting.
On Monday, there is an all-day Eurogroup meeting. Clearly, it is about the Russian war held on Ukraine.
The Bank of Canada (BoC) “Business Outlook Survey” will also be released.
On Tuesday, Mainland China celebrates the Ching Ming Festival and Tomb Sweeping Day.
The Reserve Bank of Australia (RBA) releases is interest rate decision.
The S&P Global Composite for the Euro Area should be stable at 54.5.
The S&P Global Composite for the U.S.A. should be stable at 58.5.
On Wednesday, U.S. MBA mortgage applications to April 1st get released. Do these decline, after the latest run-up in 30-year fixed rates?
FOMC minutes will hit the tape.
On Thursday, Fed hawk James Bullard gives a speech.
Weekly U.S. jobless claims come out. The 4-week average is at 208.5K.
On Friday, Canada’s household unemployment rate should be 6.0% in March, up from 5.5% in February.
The NY Fed’s John Williams gives a speech.
Conclusion
I would be on the lookout for any meaningful, fresh, headline news hailing from any Russia-Ukraine negotiations.
On top of that, any headline-causing news out of Mainland China, both on how they intend to handle Russia, how they handle COVID, and how they intend to loosen monetary policy and support their stock valuations, would be material.
In short, diplomatic and macroeconomic relations among leading countries remain under stress.
Big market-moving news that alleviates that would cause a noted material shift in 12M forward outlooks.
Everywhere.
Happy trading and investing!
Warm regards,
John Blank
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Geopolitics on the Front Burner: Global Week Ahead
In the Global Week Ahead, resilience in large cap U.S. stock index values and the exchange value of Russia's ruble to the Euro and U.S. dollar could be put to the test.
According to Reuters, as Q2 gets underway, the big macroeconomic question is when soaring global consumer price inflation rates will finally peak.
A Tuesday end to a Reserve Bank of Australia meeting, and a Wednesday release of the latest Federal Reserve minutes will provide insights on rate setters' thinking.
Next are Reuters’ five latest world market themes, reordered for equity traders:
(1) Can the S&P500 and Nasdaq continue to bounce back?
Two weeks ago, Wall Street's S&P 500 and MSCI's main world stocks index were both down -14% for the year and the Nasdaq was officially in -20% "bear" market territory.
Now? Though the war in Ukraine rages on and interest rates are on the up, the S&P 500 is back to within -5% of its all-time high, MSCI World has recovered half of its drop and the Nasdaq is down a more manageable -8%.
Analysts hope that as and when the dust settles, corporate earnings will still look okay, and that the dreaded "stagflation" scenario will be avoided. TINA, or There Is No Alternative, is still alive and well… it seems.
The next earnings season is approaching, but if the Russia-Ukraine crisis does lead to a new Iron Curtain, it might get harder for stocks to defy gravity.
(2) Is the Russian ruble rebound for real?
The ruble has staged a remarkable recovery from the record lows hit in the days following Russia's Feb. 24 invasion of Ukraine. In onshore, and offshore markets, where Western institutions trade with non-sanctioned Russian entities, the ruble is almost back to where it was in the run-up to the invasion.
The rise is partly down to capital controls that have suppressed rouble selling and artificially inflated the currency. But there is also a genuine improvement in Russia's balance of payments as imports collapse and soaring energy prices increase export revenues.
President Vladimir Putin's demand for ruble payments for gas, and whether European buyers agree, could be the next test for whether demand for the currency is real or engineered.
(3) Is this the end of the negative yielding debt era?
While the U.S. yield curve inverted, a sea change was taking place in Eurozone bond markets with German, French and Dutch two-year debt yields popping above 0% for the first time since 2014.
Yields across the bloc ended March with their biggest monthly surge in around a decade, on expectations the ECB will soon push its minus 0.5% depo rate to 0% and above.
That would be a key moment for negative-yielding debt, global volumes of which surged above $18 trillion in 2020. Savers, banks and pension funds should all benefit; risky corporate debt and emerging markets that gained from investors' "hunt for yield" may lose out.
But calling a trend change in these volatile times is not easy. Coming days could show if yield moves back above 0% are really durable.
(4) On Wednesday, the latest FOMC minutes hit the tape.
Judging by the, albeit brief, inversion of a closely watched part of the Treasury yield curve, U.S. recession risks are rising.
An inverted curve has a solid track record for predicting recessions, but how to interpret recent bond moves presents a conundrum for investors.
After the Federal Reserve's March 16th meeting offered a glowing assessment of the economic outlook, stocks are taking the bond selloff in their stride.
On Wednesday, minutes of that Fed meeting should show how policymakers view the outlook. They've already flagged bigger rate hikes to tame inflation, which is at four-decade highs. Also key would be details on how quickly the Fed might reduce its $9 trillion balance sheet, a risk some believe markets are underestimating.
(5) The Bank of Japan (BoJ) remains the most dovish major central bank.
The Bank of Japan has put its money where its mouth is, proving its position as the world's most dovish major central bank. Its standing offer to buy benchmark government bonds signals a potent defense of its yield curve control policy.
The effect of that binge is debatable: yields have only eased slightly from six-year highs, and that arguably had as much to do with U.S. Treasury yields declining from multi-year peaks.
And there's a collateral casualty of the BOJ's uber-easing: the yen, which has plumbed depths not seen since 2015. While the BOJ maintains a weaker currency is overall positive for the economy, jawboning by a queue of government officials suggests a differing view.
Australia's central bank meanwhile meets on Tuesday and while a policy change isn't expected, the bank may go further in laying groundwork for a rate hike. Markets expect one around June.
Top Zacks #1 Rank (STRONG BUY) Stocks
I still note upgrades to the outlook of Zacks Growth large-cap stocks, across a number of diverse industries.
(1) Tesla (TSLA - Free Report) : Yes, this stock is back on our #1 list. I see a share price of $1,078 and a market cap of $1.082B. The Zacks Value score is F (no surprise there), the Zacks Growth score is A (no surprise there) and the Zacks Momentum score is D (some surprise there).
(2) Advanced Micro Devices (AMD - Free Report) : This is a $109 a share stock with a market cap of $131B. I see a Zacks Value score of F, a Zacks Growth score of B and a Zacks Momentum score of C.
(3) The Kroger Co. (KR - Free Report) : Groceries are still hot. This is a $57 a share stock with a market cap of $41.4B. I see a Zacks Value score of C, a Zacks Growth score of B and a Zacks Momentum score of D.
Key Global Macro
The release of FOMC minutes is the big event, followed by the RBA meeting.
On Monday, there is an all-day Eurogroup meeting. Clearly, it is about the Russian war held on Ukraine.
The Bank of Canada (BoC) “Business Outlook Survey” will also be released.
On Tuesday, Mainland China celebrates the Ching Ming Festival and Tomb Sweeping Day.
The Reserve Bank of Australia (RBA) releases is interest rate decision.
The S&P Global Composite for the Euro Area should be stable at 54.5.
The S&P Global Composite for the U.S.A. should be stable at 58.5.
On Wednesday, U.S. MBA mortgage applications to April 1st get released. Do these decline, after the latest run-up in 30-year fixed rates?
FOMC minutes will hit the tape.
On Thursday, Fed hawk James Bullard gives a speech.
Weekly U.S. jobless claims come out. The 4-week average is at 208.5K.
On Friday, Canada’s household unemployment rate should be 6.0% in March, up from 5.5% in February.
The NY Fed’s John Williams gives a speech.
Conclusion
I would be on the lookout for any meaningful, fresh, headline news hailing from any Russia-Ukraine negotiations.
On top of that, any headline-causing news out of Mainland China, both on how they intend to handle Russia, how they handle COVID, and how they intend to loosen monetary policy and support their stock valuations, would be material.
In short, diplomatic and macroeconomic relations among leading countries remain under stress.
Big market-moving news that alleviates that would cause a noted material shift in 12M forward outlooks.
Everywhere.
Happy trading and investing!
Warm regards,
John Blank