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Will August Nonfarm Jobs Stay Strong? Global Week Ahead
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In the Global Week ahead, critical U.S. nonfarm jobs data from August comes out on Friday.
Across the globe, bond market investors seek a reprieve from higher long-term rates. A weakish nonfarm jobs number would do the trick.
In Europe, harmonized consumer price inflation (HICP) numbers come out on Thursday. A +5.3% y/y HICP rate is forecast there for August, after a higher +5.5% y/y HICP rate showed up in July.
In Asia, Mainland China is battling to shore up its markets and economy. We get the latest manufacturing PMIs from that major manufacturing economy.
Finally, a new “El Nino” weather event could affect global food markets.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) Does the Fed’s Tight Stance Move with Friday’s U.S. Nonfarm Payroll Data?
With U.S. Treasury yields surging and stocks wobbling, major data in coming days will test the U.S. economy's temperature as investors worry that the Federal Reserve may keep interest rates higher for longer.
The August employment report out on Friday takes center stage. July non-farm payrolls showed the economy added fewer jobs than expected, but solid wage gains and a declining unemployment rate to 3.5% pointed to continued tightness in labor market conditions.
Other data such as consumer confidence, the state of manufacturing, and inflation, with the latest Personal Consumption Expenditures (PCE) index is also due.
The readings come on the heels of central bank policymakers gathering for the annual Fed confab in Jackson Hole, Wyoming, and 10-year U.S. Treasury yields hitting their highest levels since 2007.
(2) Where Do Long-Term Government Bond Yields Go from Here?
Bond investors are keen to leave behind a painful August that saw a rethink of how long rates will stay higher as a strong U.S. economy put the recession fund managers have long pined for even further out of reach.
Longer-dated U.S. Treasury yields soared to a 16-year high, and real rates, adjusted for future inflation, jumped above 2% for the first time since 2009, unnerving stock markets.
But just as investors were digesting that narrative, a deepening downturn in business activity pointed to more pain ahead for Europe's stumbling economies, prompting double-digit drops in British and German bond yields in recent days.
Now, benchmark 10-year U.S. Treasuries are set for their worst monthly performance since February, with yields up nearly 30 basis points in August. But a gloomier outlook has seen smaller rises in German and British yields.
(3) Mainland China’s Real Growth Is Sputtering
China is taking ever more steps to revitalize drooping equities, a languishing currency, a teetering property market, and a floundering economy — except the big one investors want: bold fiscal stimulus.
Recent days have seen more than 100 A-share companies reportedly announcing buybacks at the request of regulators ready to shore up market confidence. The PBOC has set much stronger-than-expected mid-points for the yuan, building a floor above recent 9 1/2-month lows.
Real estate is at the center of the storm – silent Country Garden development sites show the sector's sorry state. Some developers don't have the cash to pay workers — or debt obligations.
President Xi Jinping told a BRICS summit that China's economy is a “giant ship” that will "forge ahead." PMIs on Thursday and Friday will give the latest evidence of any leaks.
(4) The European Economy Sputters, Too. What’s the ECB Going to Do Next?
For a year it was a no-brainer that the European Central Bank (ECB) would be hiking rates to contain high inflation — its key rate rose swiftly to 3.75% from below 0%.
Now comes the tough part as the economy sputters. Data showing a slide in business activity has convinced many traders that a pause in September is likely. Yet Thursday's flash euro area August inflation number, which follows releases from some member states, could be the decider.
Eurozone consumer prices rose by 5.3% in July versus 5.5% in June, extending a downtrend that started last autumn. The closely-watched underlying gauge was flat at 5.5%, but services inflation rose.
Germany's Bundesbank has warned of a growing risk that consumer price growth gets stuck above 2%. August's +20% surge in European gas prices suggests disinflation could be slow.
It is too soon to rule out a September hike.
(5) Will a New “El Nino” Weather Event Affect Global Food Supplies?
El Nino — having emerged for the first time in seven years — is posing a growing threat to global food supplies with the U.S. Climate Prediction Center saying that the weather phenomenon is expected to strengthen through the winter of 2023/24.
India's monsoon rains have suffered, with this month set to be the driest August since records began in 1901. The world's most populous country is already concerned about the threat to production of several basic commodities, including rice and sugar.
India's export ban of non-basmati white rice last month sent global prices sharply higher, and the country is expected to prohibit mills from exporting sugar from October.
Agricultural production in other Asian countries, including major palm oil and coffee producer Indonesia, and Thailand — one of the world's top sugar exporters — is also expected to be hit by dry weather in coming months.
Top Zacks #1 Rank (STRONG BUY) Stocks
Tech megacaps remain a focus in our current #1 list.
(1) Amazon.com (AMZN - Free Report) : This is a $1.36T market cap stock with a share price of $133 now. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of B.
(2) NVIDIA (NVDA - Free Report) : This is a $1.16T market cap stock with a share price of $460 now. I see a Zacks Value score of F, a Zacks Growth score of C and a Zacks Momentum score of B.
(3) Alibaba (BABA - Free Report) : This is a $228.6B market cap stock with a share price of $89 now. I see a Zacks Value score of B, a Zacks Growth score of B and a Zacks Momentum score of B.
One must wonder: When do Zacks Value scores of F on Amazon and NVIDIA matter?
If those awful Zacks Value scores do start to matter soon, a savvy trader would be buying Alibaba shares, with a Zacks Value score of B and a Zacks Growth score of B.
Key Global Macro
Friday’s U.S. nonfarm payroll data for the month of August is the big event this week. That data always trumps another other.
On Monday, Australia’s retail sales (seasonally adjusted) come out for July. I see a +0.3 m/m rise, following a -0.8% m/m decline the month prior. Summer revenge travel anyone?
On Tuesday, U.S. JOLTS job openings come out for July. The prior reading was 9.85M. A tight jobs market in the U.S. keeps the ‘soft’ landing narrative alive.
On Wednesday, U.S. ADP private payrolls for August should be a respectable +188K, after showing an over-strong +324K print in July.
On Thursday, Mainland China’s NBS manufacturing PMI for August should be 49.8, after printing 49.3 in July. A reading below 50 shows contraction, albeit 49.8 would be a mild one.
The U.S. core PCE index in July should be +4.2% y/y, after showing a +4.1% y/y print the month prior. Reminder: This data is what the FOMC policy rate thinkers care most about.
On Friday, Mainland China’s Caixin manufacturing PMI for August should be 49.4, after printing 49.2 in the month prior. This is the smaller private company index there.
U.S. nonfarm payrolls should be a respectable +170K in August, after printing +187K in July. If this is indeed a print below +200K, the FOMC will likely cheer up a touch.
Conclusion
Finally, an excerpt from Zacks Research Director’s Earnings Scorecard—
(As of Friday, August 25th)
“The Q2 reporting cycle is effectively over now, with results from 486 S&P500 members, or 97.2% of the index’s total membership, already out.”
“We have over 100 companies reporting results in the coming week, including 12 S&P500 members. Broadcom, Best Buy, Lululemon and Salesforce are among this week’s notable companies reporting results.”
“For the 486 S&P 500 members that have reported already, total Q2 earnings are down -7.4% from the same period last year on +1.05% higher revenues, with 79.6% beating EPS estimates and 65.8% beating revenue estimates.’
“Please note that earnings growth for the index would be -1.1% instead of -7.4% once the Energy sector’s drag is excluded from the results.”
“Q2 is on track to be the third quarter in a row of earnings declines and the first quarter of declining revenues.”
That is it for me.
Have a great trading week!
Warm Regards,
John Blank Zacks Chief Equity Strategist and Economist
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Will August Nonfarm Jobs Stay Strong? Global Week Ahead
In the Global Week ahead, critical U.S. nonfarm jobs data from August comes out on Friday.
Across the globe, bond market investors seek a reprieve from higher long-term rates. A weakish nonfarm jobs number would do the trick.
In Europe, harmonized consumer price inflation (HICP) numbers come out on Thursday. A +5.3% y/y HICP rate is forecast there for August, after a higher +5.5% y/y HICP rate showed up in July.
In Asia, Mainland China is battling to shore up its markets and economy. We get the latest manufacturing PMIs from that major manufacturing economy.
Finally, a new “El Nino” weather event could affect global food markets.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) Does the Fed’s Tight Stance Move with Friday’s U.S. Nonfarm Payroll Data?
With U.S. Treasury yields surging and stocks wobbling, major data in coming days will test the U.S. economy's temperature as investors worry that the Federal Reserve may keep interest rates higher for longer.
The August employment report out on Friday takes center stage. July non-farm payrolls showed the economy added fewer jobs than expected, but solid wage gains and a declining unemployment rate to 3.5% pointed to continued tightness in labor market conditions.
Other data such as consumer confidence, the state of manufacturing, and inflation, with the latest Personal Consumption Expenditures (PCE) index is also due.
The readings come on the heels of central bank policymakers gathering for the annual Fed confab in Jackson Hole, Wyoming, and 10-year U.S. Treasury yields hitting their highest levels since 2007.
(2) Where Do Long-Term Government Bond Yields Go from Here?
Bond investors are keen to leave behind a painful August that saw a rethink of how long rates will stay higher as a strong U.S. economy put the recession fund managers have long pined for even further out of reach.
Longer-dated U.S. Treasury yields soared to a 16-year high, and real rates, adjusted for future inflation, jumped above 2% for the first time since 2009, unnerving stock markets.
But just as investors were digesting that narrative, a deepening downturn in business activity pointed to more pain ahead for Europe's stumbling economies, prompting double-digit drops in British and German bond yields in recent days.
Now, benchmark 10-year U.S. Treasuries are set for their worst monthly performance since February, with yields up nearly 30 basis points in August. But a gloomier outlook has seen smaller rises in German and British yields.
(3) Mainland China’s Real Growth Is Sputtering
China is taking ever more steps to revitalize drooping equities, a languishing currency, a teetering property market, and a floundering economy — except the big one investors want: bold fiscal stimulus.
Recent days have seen more than 100 A-share companies reportedly announcing buybacks at the request of regulators ready to shore up market confidence. The PBOC has set much stronger-than-expected mid-points for the yuan, building a floor above recent 9 1/2-month lows.
Real estate is at the center of the storm – silent Country Garden development sites show the sector's sorry state. Some developers don't have the cash to pay workers — or debt obligations.
President Xi Jinping told a BRICS summit that China's economy is a “giant ship” that will "forge ahead." PMIs on Thursday and Friday will give the latest evidence of any leaks.
(4) The European Economy Sputters, Too. What’s the ECB Going to Do Next?
For a year it was a no-brainer that the European Central Bank (ECB) would be hiking rates to contain high inflation — its key rate rose swiftly to 3.75% from below 0%.
Now comes the tough part as the economy sputters. Data showing a slide in business activity has convinced many traders that a pause in September is likely. Yet Thursday's flash euro area August inflation number, which follows releases from some member states, could be the decider.
Eurozone consumer prices rose by 5.3% in July versus 5.5% in June, extending a downtrend that started last autumn. The closely-watched underlying gauge was flat at 5.5%, but services inflation rose.
Germany's Bundesbank has warned of a growing risk that consumer price growth gets stuck above 2%. August's +20% surge in European gas prices suggests disinflation could be slow.
It is too soon to rule out a September hike.
(5) Will a New “El Nino” Weather Event Affect Global Food Supplies?
El Nino — having emerged for the first time in seven years — is posing a growing threat to global food supplies with the U.S. Climate Prediction Center saying that the weather phenomenon is expected to strengthen through the winter of 2023/24.
India's monsoon rains have suffered, with this month set to be the driest August since records began in 1901. The world's most populous country is already concerned about the threat to production of several basic commodities, including rice and sugar.
India's export ban of non-basmati white rice last month sent global prices sharply higher, and the country is expected to prohibit mills from exporting sugar from October.
Agricultural production in other Asian countries, including major palm oil and coffee producer Indonesia, and Thailand — one of the world's top sugar exporters — is also expected to be hit by dry weather in coming months.
Top Zacks #1 Rank (STRONG BUY) Stocks
Tech megacaps remain a focus in our current #1 list.
(1) Amazon.com (AMZN - Free Report) : This is a $1.36T market cap stock with a share price of $133 now. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of B.
(2) NVIDIA (NVDA - Free Report) : This is a $1.16T market cap stock with a share price of $460 now. I see a Zacks Value score of F, a Zacks Growth score of C and a Zacks Momentum score of B.
(3) Alibaba (BABA - Free Report) : This is a $228.6B market cap stock with a share price of $89 now. I see a Zacks Value score of B, a Zacks Growth score of B and a Zacks Momentum score of B.
One must wonder: When do Zacks Value scores of F on Amazon and NVIDIA matter?
If those awful Zacks Value scores do start to matter soon, a savvy trader would be buying Alibaba shares, with a Zacks Value score of B and a Zacks Growth score of B.
Key Global Macro
Friday’s U.S. nonfarm payroll data for the month of August is the big event this week. That data always trumps another other.
On Monday, Australia’s retail sales (seasonally adjusted) come out for July. I see a +0.3 m/m rise, following a -0.8% m/m decline the month prior. Summer revenge travel anyone?
On Tuesday, U.S. JOLTS job openings come out for July. The prior reading was 9.85M. A tight jobs market in the U.S. keeps the ‘soft’ landing narrative alive.
On Wednesday, U.S. ADP private payrolls for August should be a respectable +188K, after showing an over-strong +324K print in July.
On Thursday, Mainland China’s NBS manufacturing PMI for August should be 49.8, after printing 49.3 in July. A reading below 50 shows contraction, albeit 49.8 would be a mild one.
The U.S. core PCE index in July should be +4.2% y/y, after showing a +4.1% y/y print the month prior. Reminder: This data is what the FOMC policy rate thinkers care most about.
On Friday, Mainland China’s Caixin manufacturing PMI for August should be 49.4, after printing 49.2 in the month prior. This is the smaller private company index there.
U.S. nonfarm payrolls should be a respectable +170K in August, after printing +187K in July. If this is indeed a print below +200K, the FOMC will likely cheer up a touch.
Conclusion
Finally, an excerpt from Zacks Research Director’s Earnings Scorecard—
(As of Friday, August 25th)
“The Q2 reporting cycle is effectively over now, with results from 486 S&P500 members, or 97.2% of the index’s total membership, already out.”
“We have over 100 companies reporting results in the coming week, including 12 S&P500 members. Broadcom, Best Buy, Lululemon and Salesforce are among this week’s notable companies reporting results.”
“For the 486 S&P 500 members that have reported already, total Q2 earnings are down -7.4% from the same period last year on +1.05% higher revenues, with 79.6% beating EPS estimates and 65.8% beating revenue estimates.’
“Please note that earnings growth for the index would be -1.1% instead of -7.4% once the Energy sector’s drag is excluded from the results.”
“Q2 is on track to be the third quarter in a row of earnings declines and the first quarter of declining revenues.”
That is it for me.
Have a great trading week!
Warm Regards,
John Blank
Zacks Chief Equity Strategist and Economist