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In the Global Week Ahead, a bearish year for risk markets enters a final fourth quarter.
These days, there are plenty of places to note sources of financial turbulence.
Across the Atlantic Pond, the U.K. may have a self-inflicted financial crisis underway.
On Sunday, in Latin America, Brazil's voters headed to the polls (inconclusively). A 2nd Presidential election will now happen.
On Monday, there is a closed-door Fed meeting.
On Tuesday, a ramp-up in pressure on monetary policymakers likely shows up, when the Reserve Bank of Australia (RBA) issues its latest policy statement. The Australian and New Zealand currencies trade at multi-year lows against the USD already.
On Friday, on this side of the Pond, U.S. equity traders will focus on U.S. jobs data. This U.S. data can show us whether a steep schedule of Fed hikes has any effect, at all, upon tight U.S. labor markets.
Next are Reuters' five world market themes, rank-ordered for equity traders.
(1) Where Do Global Financial Markets Head from Here?
The last few months have rained yet more pain down on financial markets, meaning this year is firmly on course to be the most painful ever for anyone lucky enough not to have experienced World War II, unless they had all their chips on king dollar.
Free and easy central banks have morphed into inflation-fighting machines. Another 5% has been lopped off world stocks since June, oil has slumped more than 20% and Japan and Britain have both had been forced into currency or bond interventions.
Whether the next few months will be any better is no easy call. While there are some signs global inflation might be peaking, major central banks look stuck on the rate hike hamster wheel.
Geopolitics will continue to be high on the agenda, with China's Communist Party Congress getting underway in October, while Russia's nuclear threats and annexation of Ukraine's territory have marked the start of a new phase in the seven-month-old conflict.
(2) On Friday, the SEPT U.S. Nonfarm Payroll Report Arrives
U.S. jobs data on Oct. 7 will show whether the Fed's rate hike barrage is finally making an impact.
Past employment data suggested the economy was humming along despite several jumbo-sized rate increases — evidence usually corroborated by strong inflation readings a few weeks later.
Another such report for September could help bolster the case for even more hawkishness from the world's top central bank, potentially roiling markets already bruised by worries over how high rates could soar in a bid to tame the worst inflation in forty years.
Conversely, signs of rapidly deteriorating jobs growth could fuel worries that aggressive Fed tightening is pushing the economy towards a recession.
Economists polled by Reuters expect the United States to have created 250,000 jobs last month.
(3) Will a U.K. Financial Crisis Arrive Shortly?
When Britain's new finance minister Kwasi Kwarteng speaks at his Conservative Party's annual conference, which kicks off Sunday, it's not just the party faithful that will tune in.
Britain is at the center of an economic firestorm, triggered by Kwarteng's Sept. 23 fiscal plan that spooked markets with its unfunded tax cuts. Sterling hit record lows, and surging bond yields forced the Bank of England (BoE) to intervene to stem a market rout.
The BoE's pledge to buy $69 billion of long-dated gilts has calmed markets for now, but it's too soon to say the rout is over. And buying bonds at a time when the BoE is hiking rates to contain inflation could hurt its credibility.
The IMF, among others, has weighed in on UK events and their impact globally. That leaves the spotlight firmly on Kwarteng.
(4) On Tuesday, the Reserve Bank of Australia Steps Up to Bat
The freefall in antipodean currencies to multi-year lows is piling pressure on central banks to deliver tighter policy.
For Australia's Reserve Bank, bets are fifty-fifty for a half-point or quarter-point hike on Tuesday.
Traders fully price another half-point rate increase by the Reserve Bank of New Zealand on Wednesday and lay 1-in-5 odds on a 75 basis point bump.
New Zealand was first out of the gate among developed markets a year ago, while Australia has delivered one of the most aggressive campaigns in its history.
But accelerating policy tightening elsewhere, particularly in the United States, has cut into the yield advantage.
With the Aussie and Kiwi both hyper-sensitive to swings in risk sentiment, policymakers may have little ability to arrest the slide.
(5) On Sunday, Brazil Held a Presidential Election
Leftist former union leader Luiz Inacio Lula da Silva is on track to replace Brazil's right-wing President Jair Bolsonaro and looks ready to tear up the most important fiscal rule in the world's 10th largest economy.
This will go to a 2nd round run-off, after no candidate achieved a majority of more than 50% of the ballot on Sunday night. With more than 99% of the vote counted, the official count put Lula ahead with 48.4% of the vote, versus 43.2% for Bolsonaro.
The Brazil iShares ETF (EWZ - Free Report) was up +4.6% in pre-markets, after Sunday's highly polarized election.
There is an even-keeled outlook for Brazil. The local currency and stock market have rallied this year, in a sign of confidence the vote won't ruin the relative safe haven of Latin America's largest economy.
But politics can be febrile in the region. An assassination attempt in Argentina and spurts of election-linked violence in Brazil are the latest signs of growing political strife.
Investors are looking for a calm transition as Bolsonaro lays the groundwork to contest a defeat, but Brazil's institutions have closed ranks to guarantee the integrity of the vote.
Zacks #1 Rank (STRONG BUY) Stocks
I saw some fresh U.S. tech stocks on our #1 list this week.
(1) Infineon (IFNNY - Free Report) : This is a $22 a share Semiconductor industry stock, with a market cap of $28.6B. I see a Zacks Value score of C, a Zacks Growth score of F and a Zacks Momentum score of C.
(2) GDF Suez (ENGIY - Free Report) : This is a $12 a share French Electric Utility industry stock, with a market cap of $28.5B. I see a Zacks Value score of A, a Zacks Growth score of D and a Zacks Momentum score of C.
(3) Keysight Technologies (KEYS - Free Report) : This is a $159 a share Electronic Measuring Instrument industry stock, with a market cap of $28.4B. I see a Zacks Value score of F, a Zacks Growth score of D and a Zacks Momentum score of F.
Are tech stock valuations low enough to attract bargain hunters? It is still a fair question.
Key Global Macro
I would be focused on the U.S. nonfarm payroll report, out on Friday morning.
On Monday, there is a Eurogroup meeting. The Nordstream gas pipeline sabotage is likely the agenda.
The S&P Global Manufacturing PMI for the Eurozone comes out. The call is for 48.5, consistent with the prior 48.5 reading.
The U.S. ISM manufacturing PMI comes out for SEPT. I see a 52.3 SEPT consensus, after a 52.8 reading in AUG.
On Tuesday, the Reserve Bank of Australia (RBA) should move its policy rate to 2.85% from 2.35%.
U.S. JOLTS job openings for AUG should be 10.45M, lower than JULY’s 11.24M. But still very high.
On Wednesday, the Reserve Bank of New Zealand (RBNZ) is likely to hike to 3.5% from 3.0%.
There is an OPEC meeting.
The U.S. ISM Services PMI should be 56.5 in SEPT, after printing 56.9 in AUG.
On Thursday, Euro-area retail sales for AUG should be down -1.7% y/y. The m/m fall should be -0.4%, which is much worse (absolutely and directionally) than the JULY +0.3% m/m rise there.
On Friday, there is an EU leader’s summit.
U.S. nonfarm payrolls for SEPT should be up +250K, after printing +315K in AUG.
The U.S. household unemployment rate for SEPT should hold steady at 3.7%.
Conclusion
I will close with Zacks Research Director Sheraz Mian’s three key EPS points.
(1) The widely held view that earnings estimates remain out of sync with the economic ground reality is erroneous — as it looks at the aggregate picture at the S&P500 index level — where estimates for the Energy Sector have consistently been positive.
(2) Estimates for the last two quarters of this year and full-year 2023 are coming down, even though positive revisions to the Energy Sector continue to partly offset estimate cuts elsewhere.
(3) The +1.0% earnings growth expected for the S&P500 index in Q3-2022 is down from +7.2% at the start of the period.
Excluding the Energy Sector, Q3 earnings are expected to be down -5.7% at present, a significant decline from +2.1% at the beginning of July.
The bears have clearly been trading on those earnings negatives.
So, are these EPS negatives all priced in?
Have a great trading week.
Warm Regards,
John Blank Zacks Chief Equity Strategist and Economist
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Is It All Priced In? Global Week Ahead
In the Global Week Ahead, a bearish year for risk markets enters a final fourth quarter.
These days, there are plenty of places to note sources of financial turbulence.
Across the Atlantic Pond, the U.K. may have a self-inflicted financial crisis underway.
On Sunday, in Latin America, Brazil's voters headed to the polls (inconclusively). A 2nd Presidential election will now happen.
On Monday, there is a closed-door Fed meeting.
On Tuesday, a ramp-up in pressure on monetary policymakers likely shows up, when the Reserve Bank of Australia (RBA) issues its latest policy statement. The Australian and New Zealand currencies trade at multi-year lows against the USD already.
On Friday, on this side of the Pond, U.S. equity traders will focus on U.S. jobs data. This U.S. data can show us whether a steep schedule of Fed hikes has any effect, at all, upon tight U.S. labor markets.
Next are Reuters' five world market themes, rank-ordered for equity traders.
(1) Where Do Global Financial Markets Head from Here?
The last few months have rained yet more pain down on financial markets, meaning this year is firmly on course to be the most painful ever for anyone lucky enough not to have experienced World War II, unless they had all their chips on king dollar.
Free and easy central banks have morphed into inflation-fighting machines. Another 5% has been lopped off world stocks since June, oil has slumped more than 20% and Japan and Britain have both had been forced into currency or bond interventions.
Whether the next few months will be any better is no easy call. While there are some signs global inflation might be peaking, major central banks look stuck on the rate hike hamster wheel.
Geopolitics will continue to be high on the agenda, with China's Communist Party Congress getting underway in October, while Russia's nuclear threats and annexation of Ukraine's territory have marked the start of a new phase in the seven-month-old conflict.
(2) On Friday, the SEPT U.S. Nonfarm Payroll Report Arrives
U.S. jobs data on Oct. 7 will show whether the Fed's rate hike barrage is finally making an impact.
Past employment data suggested the economy was humming along despite several jumbo-sized rate increases — evidence usually corroborated by strong inflation readings a few weeks later.
Another such report for September could help bolster the case for even more hawkishness from the world's top central bank, potentially roiling markets already bruised by worries over how high rates could soar in a bid to tame the worst inflation in forty years.
Conversely, signs of rapidly deteriorating jobs growth could fuel worries that aggressive Fed tightening is pushing the economy towards a recession.
Economists polled by Reuters expect the United States to have created 250,000 jobs last month.
(3) Will a U.K. Financial Crisis Arrive Shortly?
When Britain's new finance minister Kwasi Kwarteng speaks at his Conservative Party's annual conference, which kicks off Sunday, it's not just the party faithful that will tune in.
Britain is at the center of an economic firestorm, triggered by Kwarteng's Sept. 23 fiscal plan that spooked markets with its unfunded tax cuts. Sterling hit record lows, and surging bond yields forced the Bank of England (BoE) to intervene to stem a market rout.
The BoE's pledge to buy $69 billion of long-dated gilts has calmed markets for now, but it's too soon to say the rout is over. And buying bonds at a time when the BoE is hiking rates to contain inflation could hurt its credibility.
The IMF, among others, has weighed in on UK events and their impact globally. That leaves the spotlight firmly on Kwarteng.
(4) On Tuesday, the Reserve Bank of Australia Steps Up to Bat
The freefall in antipodean currencies to multi-year lows is piling pressure on central banks to deliver tighter policy.
For Australia's Reserve Bank, bets are fifty-fifty for a half-point or quarter-point hike on Tuesday.
Traders fully price another half-point rate increase by the Reserve Bank of New Zealand on Wednesday and lay 1-in-5 odds on a 75 basis point bump.
New Zealand was first out of the gate among developed markets a year ago, while Australia has delivered one of the most aggressive campaigns in its history.
But accelerating policy tightening elsewhere, particularly in the United States, has cut into the yield advantage.
With the Aussie and Kiwi both hyper-sensitive to swings in risk sentiment, policymakers may have little ability to arrest the slide.
(5) On Sunday, Brazil Held a Presidential Election
Leftist former union leader Luiz Inacio Lula da Silva is on track to replace Brazil's right-wing President Jair Bolsonaro and looks ready to tear up the most important fiscal rule in the world's 10th largest economy.
This will go to a 2nd round run-off, after no candidate achieved a majority of more than 50% of the ballot on Sunday night. With more than 99% of the vote counted, the official count put Lula ahead with 48.4% of the vote, versus 43.2% for Bolsonaro.
The Brazil iShares ETF (EWZ - Free Report) was up +4.6% in pre-markets, after Sunday's highly polarized election.
There is an even-keeled outlook for Brazil. The local currency and stock market have rallied this year, in a sign of confidence the vote won't ruin the relative safe haven of Latin America's largest economy.
But politics can be febrile in the region. An assassination attempt in Argentina and spurts of election-linked violence in Brazil are the latest signs of growing political strife.
Investors are looking for a calm transition as Bolsonaro lays the groundwork to contest a defeat, but Brazil's institutions have closed ranks to guarantee the integrity of the vote.
Zacks #1 Rank (STRONG BUY) Stocks
I saw some fresh U.S. tech stocks on our #1 list this week.
(1) Infineon (IFNNY - Free Report) : This is a $22 a share Semiconductor industry stock, with a market cap of $28.6B. I see a Zacks Value score of C, a Zacks Growth score of F and a Zacks Momentum score of C.
(2) GDF Suez (ENGIY - Free Report) : This is a $12 a share French Electric Utility industry stock, with a market cap of $28.5B. I see a Zacks Value score of A, a Zacks Growth score of D and a Zacks Momentum score of C.
(3) Keysight Technologies (KEYS - Free Report) : This is a $159 a share Electronic Measuring Instrument industry stock, with a market cap of $28.4B. I see a Zacks Value score of F, a Zacks Growth score of D and a Zacks Momentum score of F.
Are tech stock valuations low enough to attract bargain hunters? It is still a fair question.
Key Global Macro
I would be focused on the U.S. nonfarm payroll report, out on Friday morning.
On Monday, there is a Eurogroup meeting. The Nordstream gas pipeline sabotage is likely the agenda.
The S&P Global Manufacturing PMI for the Eurozone comes out. The call is for 48.5, consistent with the prior 48.5 reading.
The U.S. ISM manufacturing PMI comes out for SEPT. I see a 52.3 SEPT consensus, after a 52.8 reading in AUG.
On Tuesday, the Reserve Bank of Australia (RBA) should move its policy rate to 2.85% from 2.35%.
U.S. JOLTS job openings for AUG should be 10.45M, lower than JULY’s 11.24M. But still very high.
On Wednesday, the Reserve Bank of New Zealand (RBNZ) is likely to hike to 3.5% from 3.0%.
There is an OPEC meeting.
The U.S. ISM Services PMI should be 56.5 in SEPT, after printing 56.9 in AUG.
On Thursday, Euro-area retail sales for AUG should be down -1.7% y/y. The m/m fall should be -0.4%, which is much worse (absolutely and directionally) than the JULY +0.3% m/m rise there.
On Friday, there is an EU leader’s summit.
U.S. nonfarm payrolls for SEPT should be up +250K, after printing +315K in AUG.
The U.S. household unemployment rate for SEPT should hold steady at 3.7%.
Conclusion
I will close with Zacks Research Director Sheraz Mian’s three key EPS points.
(1) The widely held view that earnings estimates remain out of sync with the economic ground reality is erroneous — as it looks at the aggregate picture at the S&P500 index level — where estimates for the Energy Sector have consistently been positive.
(2) Estimates for the last two quarters of this year and full-year 2023 are coming down, even though positive revisions to the Energy Sector continue to partly offset estimate cuts elsewhere.
(3) The +1.0% earnings growth expected for the S&P500 index in Q3-2022 is down from +7.2% at the start of the period.
Excluding the Energy Sector, Q3 earnings are expected to be down -5.7% at present, a significant decline from +2.1% at the beginning of July.
The bears have clearly been trading on those earnings negatives.
So, are these EPS negatives all priced in?
Have a great trading week.
Warm Regards,
John Blank
Zacks Chief Equity Strategist and Economist