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In this Global Week Ahead, we see thru the very last big central bank push of the year.
The Fed, the European Central Bank (ECB), and the Bank of England (BoE) are among the big policy rate hitters who meet.
From their projections and comments, stock and bond traders will try to discern if a U.S. recession is unavoidable — or a distant prospect.
Joining the recent strong rally in both stocks and bonds, Bitcoin enjoys a stellar rally, too. Will a Bitcoin ETF be approved?
In Asia, Mainland China's policymakers will set a direction for next year.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) On Wednesday afternoon, the two-day U.S. FOMC meeting breaks.
There's no bigger factor than the Fed for markets in their bets on when rate cuts might come, with policy makers getting one last chance this year to roil markets when the world's top central bank gives its final 2023 policy statement on Wednesday.
Holding rates seems a done deal, with investors laser focused on comments from Chair Jerome Powell that could indicate when the Fed might look to cut rates after 525 basis points of hikes since March 2022.
Projections the Fed is poised to start lowering rates early in 2024 have helped fuel that huge rally in stocks and bonds, sending the S&P 500 to a new closing high for 2023 and pulling 10-year Treasury yields back down closer to 4%.
U.S. November inflation data on Tuesday could provide a wrinkle for markets. October's Consumer Price Index (CPI) was unchanged, a first in more than a year.
(2) On Thursday, after the FOMC, a number of central banks issue decisions.
It is not just in the U.S. that traders have ignored policymaker warnings that bets on steep rate cuts next year have gone overboard.
Major central banks elsewhere are on the jam-packed agenda, with the Swiss National Bank, Norges Bank, Bank of England and European Central Bank all meeting Thursday. All but Norway are tipped to stay on hold.
With markets pricing five Fed and six ECB cuts next year, focus is on how policymakers, who can't sound the all-clear on inflation just yet, grapple with the pressure.
Comments from rates-setters, such as ECB hawk Isabel Schnabel, have prompted traders to double down, and they are likely to pounce on any clues central bankers are starting to come around. But if policymakers decide enough is enough and challenge markets, expect a broad sell-off.
(3) For 2024, deep divisions on recession in forecasts remain in play.
Recession roulette has been a high-stakes game since late 2021, and it's not getting easier.
Forecasters at top investment banks are deeply divided between those sticking to predictions of a long-expected U.S. downturn and rapid Federal Reserve rate cuts and others recommending folding on the bet.
Goldman Sachs expects the world's largest economy to decelerate without contracting, with borrowing costs staying near current levels
Deutsche Bank predicts a mild recession followed by a whopping 175 basis points of cuts that will drive the S&P500 about +10% higher by late 2024
Uncertainty seems to rise despite November's red-hot rally for stocks and bonds. PMI readings due out in the days to come will provide a frontline view.
Outflows from equity and bond funds show investors — currently well compensated for holding cash — are stepping away from the table.
Citi's risk aversion is ticking higher.
(4) With Bitcoin rising again, it feels like a return to 2022.
Bitcoin has been rising again.
On Tuesday it hit $44,490 — its highest since April last year. In other words, it's back to levels it was at before 2022's most high-profile crypto firm collapses: TerraUSD, Three Arrows Capital, Celsius and FTX.
The gains are fueled by hopes that the U.S. might approve applications for a spot Bitcoin ETF, analysts say, as well as investors betting on Fed rate cuts next year.
But those outcomes are far from guaranteed, and JPMorgan has called the Bitcoin rally “overdone.”
Meanwhile crypto fans don't appear worried about the U.S. Treasury warning about consequences for the industry if firms fail to block and report the flow of illicit funds.
China's economy is sending mixed signals about its health, just as policy makers convene for pivotal closed-door meetings to set the 2024 agenda.
Government advisers have told Reuters they'll recommend a repeat of the +5% growth target, but also more stimulus in order to get there.
Measures so far, have for the most part fallen short, with confidence fragile among consumers and factory managers. Beijing needs a return of animal spirits to fill the hole left by patchy property market growth.
Retail sales data on Dec. 15th will provide an update, after figures out in recent days showed a surprise contraction for imports — suggesting subdued domestic demand — even as exports unexpectedly rebounded.
Real estate remains the elephant in the room, though, and was at the heart of a Moody's decision to cut the outlook for China's debt rating — a move reverberating through Chinese capital markets all week.
Zacks #1 Rank (STRONG BUY) Stocks
I noted three insurance stocks on our list this week.
In their 2023 insurance outlook, Deloitte offered this insurance industry insight:
“Inflation hampers non-life profitability even while boosting prices, top-line growth.”
Getting inflation under control really did lift insurer’s earnings estimates.
Study on for a fuller picture on that…
(1) Erie Indemnity (ERIE - Free Report) : This is a $306 stock with a market cap of $15.7B. It resides in the Insurance Brokerage industry. I see a Zacks Value score of F, a Zacks Growth score of D and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Erie Indemnity Company's principal business activity consists of management of the affairs for Erie Insurance Exchange. The company also participates in the property/casualty insurance business through its three wholly owned subsidiaries, Erie Insurance Company, Erie Insurance Company of New York, and Erie Insurance Property and Casualty Company and through its management of the Flagship City Insurance Company, a subsidiary of Erie Insurance Exchange.
(2) CNA Financial (CNA - Free Report) : This is a $42 stock with a market cap of $11.4B. It resides in the Insurance Property and Casualty industry. I see a Zacks Value score of A, a Zacks Growth score of D and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Headquartered in Chicago, IL, CNA Financial Corp. was established in 1853. It was incorporated in 1967. The company operates as a P&C insurer. It offers commercial P&C insurance products, mainly across the United States. It markets its products through independent agents, brokers, and general underwriters to small, medium, and large businesses; insurance companies; associations; professionals; and other groups in the marine, oil and gas, construction, manufacturing, life science, property, financial services, healthcare, and technology industries.
CNA's property and casualty and remaining life and group insurance operations are primarily conducted by Continental Casualty Company (CCC), The Continental Insurance Company, Western Surety Company, CNA Insurance Company Limited and Hardy Underwriting Bermuda Limited and its subsidiaries (Hardy).
Loews Corp. acts as the parent company, with 89% stake in its subsidiary (as on Dec 31, 2018), CNA Financial. The company’s P&C field structure consists of 49 underwriting locations across the United States.
CNA Financial classifies its operations through three core and two non-core segments.
The three core segments are Specialty, Commercial and International
The two non-core segments are Life & Group Non-Core and Corporate & Other Non-Core
(3) Assurant (AIZ - Free Report) : This is a $306 stock with a market cap of $15.7B. It resides in the Insurance Multi-line industry. I see a Zacks Value score of B, a Zacks Growth score of B and a Zacks Momentum score of C.
Image Source: Zacks Investment Research
Founded in 1969 and headquartered in New York, Assurant Inc. is a global provider of risk management solutions in the housing and lifestyle markets, protecting where people live and the goods they buy.
The company operates in North America, Latin America, Europe and Asia Pacific.
Assurant was incorporated in Delaware in 2004.
The company reports through three reportable segments: Global Lifestyle and Global Housing.
Global Lifestylesegment (78.5% of 2022 Net earned premiums) provides mobile device protection products and related services and extended service products and related services for consumer electronics and appliances (referred to as Connected Living); vehicle protection and related services (referred to as Global Automotive); and credit and other insurance products (referred to as Global Financial Services).
Global Lifestyle operates globally, with about 82% of its revenues from North America, 8% from Latin America, 5% from Europe and 5% from Asia Pacific for the year ended Dec 31, 2022.
Global Housing segment (21.5%) provides lender-placed homeowners insurance, lender-placed manufactured housing insurance, lender-placed flood insurance; and renters insurance and related products (referred to as Multifamily Housing), as well as voluntary manufactured housing and other insurance. This segment is comprised of two key lines of business, Homeowners and Renters and Other.
On Aug. 1st, 2018, Assurant sold its Mortgage Solutions business, which comprised property inspection and preservation, valuation and title services and other property risk management services.
Key Global Macro
On Monday, the RBA’s Governor Bullock gives a speech in Australia.
On Tuesday, Mainland China’s FDI data thru NOV comes out. The prior y/y reading was -9.4%.
The U.S. Consumer Price Indices (CPI) for NOV come out. Core ex-food and energy CPI has a +4.0% y/y prior reading to contend with. The NOV call is for a +0.2% m/m addition, in line with the +0.2% addition seen in OCT.
On Wednesday, the core U.S. PPI comes out for NOV. The monthly addition here is also for +0.2% m/m, a rise from +0.0% the prior month.
The FOMC rate decision comes out. As important, the update to the Fed’s Economics Projections come out. 5.6% was the ‘terminal’ Fed Funds rate a few months ago.
On Thursday, a two-day long E.U. leader’s summit begins.
The Swiss National Bank (SNB), the Bank of England (BoE), and the European Central Bank (ECB) all step up and offer monetary policy decisions. No change in policy rates is expected.
U.S. Retail Sales for NOV come out. Ex-autos, the consensus is looking for a -0.1% m/m decline, following a +0.1% m/m reading in OCT.
On Friday, the Euro Area HCOB manufacturing PMI comes out for DEC. The consensus has 44.5 for a flash reading on DEC, after 44.2 showed up in NOV.
To do a regional comparison, the U.S. global manufacturing PMI for DEC comes out too. I see a prior 49.4 reading appeared in NOV.
In short, Europe struggles, a touch, while the U.S. walks the ‘soft landing’ tightrope.
Conclusion
In the week ahead, I will be paying the bulk of my attention to the Fed’s latest economic projections.
The Fed’s September dot plot ‘terminal’ rate — at 5.6% — is a key summary metric, to watch for an end-of-year 2023 update.
The change in distribution, in the various regional bank’s assorted opinions, around that ‘terminal’ Fed Funds policy rate metric, is important.
So is the amount and timing of any project FOMC policy rate-cutting.
With a downward risk-free 10-year U.S. Treasury yield move of -87 basis points already in place, from 5.0% to 4.13%, the world’s bond traders have priced in a major re-set.
The world’s major financial markets are forward-looking, always.
Bond traders are called ‘the smart money.’
We shall see.
Happy trading and investing!
John Blank Zacks Chief Equity Strategist and Economist
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Where's the New 'Dot Plot'? Global Week Ahead
In this Global Week Ahead, we see thru the very last big central bank push of the year.
The Fed, the European Central Bank (ECB), and the Bank of England (BoE) are among the big policy rate hitters who meet.
From their projections and comments, stock and bond traders will try to discern if a U.S. recession is unavoidable — or a distant prospect.
Joining the recent strong rally in both stocks and bonds, Bitcoin enjoys a stellar rally, too. Will a Bitcoin ETF be approved?
In Asia, Mainland China's policymakers will set a direction for next year.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) On Wednesday afternoon, the two-day U.S. FOMC meeting breaks.
There's no bigger factor than the Fed for markets in their bets on when rate cuts might come, with policy makers getting one last chance this year to roil markets when the world's top central bank gives its final 2023 policy statement on Wednesday.
Holding rates seems a done deal, with investors laser focused on comments from Chair Jerome Powell that could indicate when the Fed might look to cut rates after 525 basis points of hikes since March 2022.
Projections the Fed is poised to start lowering rates early in 2024 have helped fuel that huge rally in stocks and bonds, sending the S&P 500 to a new closing high for 2023 and pulling 10-year Treasury yields back down closer to 4%.
U.S. November inflation data on Tuesday could provide a wrinkle for markets. October's Consumer Price Index (CPI) was unchanged, a first in more than a year.
(2) On Thursday, after the FOMC, a number of central banks issue decisions.
It is not just in the U.S. that traders have ignored policymaker warnings that bets on steep rate cuts next year have gone overboard.
Major central banks elsewhere are on the jam-packed agenda, with the Swiss National Bank, Norges Bank, Bank of England and European Central Bank all meeting Thursday. All but Norway are tipped to stay on hold.
With markets pricing five Fed and six ECB cuts next year, focus is on how policymakers, who can't sound the all-clear on inflation just yet, grapple with the pressure.
Comments from rates-setters, such as ECB hawk Isabel Schnabel, have prompted traders to double down, and they are likely to pounce on any clues central bankers are starting to come around. But if policymakers decide enough is enough and challenge markets, expect a broad sell-off.
(3) For 2024, deep divisions on recession in forecasts remain in play.
Recession roulette has been a high-stakes game since late 2021, and it's not getting easier.
Forecasters at top investment banks are deeply divided between those sticking to predictions of a long-expected U.S. downturn and rapid Federal Reserve rate cuts and others recommending folding on the bet.
Uncertainty seems to rise despite November's red-hot rally for stocks and bonds. PMI readings due out in the days to come will provide a frontline view.
Outflows from equity and bond funds show investors — currently well compensated for holding cash — are stepping away from the table.
Citi's risk aversion is ticking higher.
(4) With Bitcoin rising again, it feels like a return to 2022.
Bitcoin has been rising again.
On Tuesday it hit $44,490 — its highest since April last year. In other words, it's back to levels it was at before 2022's most high-profile crypto firm collapses: TerraUSD, Three Arrows Capital, Celsius and FTX.
The gains are fueled by hopes that the U.S. might approve applications for a spot Bitcoin ETF, analysts say, as well as investors betting on Fed rate cuts next year.
But those outcomes are far from guaranteed, and JPMorgan has called the Bitcoin rally “overdone.”
Meanwhile crypto fans don't appear worried about the U.S. Treasury warning about consequences for the industry if firms fail to block and report the flow of illicit funds.
(5) Mainland China’s economy keeps sending mixed signals.
China's economy is sending mixed signals about its health, just as policy makers convene for pivotal closed-door meetings to set the 2024 agenda.
Government advisers have told Reuters they'll recommend a repeat of the +5% growth target, but also more stimulus in order to get there.
Measures so far, have for the most part fallen short, with confidence fragile among consumers and factory managers. Beijing needs a return of animal spirits to fill the hole left by patchy property market growth.
Retail sales data on Dec. 15th will provide an update, after figures out in recent days showed a surprise contraction for imports — suggesting subdued domestic demand — even as exports unexpectedly rebounded.
Real estate remains the elephant in the room, though, and was at the heart of a Moody's decision to cut the outlook for China's debt rating — a move reverberating through Chinese capital markets all week.
Zacks #1 Rank (STRONG BUY) Stocks
I noted three insurance stocks on our list this week.
In their 2023 insurance outlook, Deloitte offered this insurance industry insight:
“Inflation hampers non-life profitability even while boosting prices, top-line growth.”
Getting inflation under control really did lift insurer’s earnings estimates.
Study on for a fuller picture on that…
(1) Erie Indemnity (ERIE - Free Report) : This is a $306 stock with a market cap of $15.7B. It resides in the Insurance Brokerage industry. I see a Zacks Value score of F, a Zacks Growth score of D and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Erie Indemnity Company's principal business activity consists of management of the affairs for Erie Insurance Exchange. The company also participates in the property/casualty insurance business through its three wholly owned subsidiaries, Erie Insurance Company, Erie Insurance Company of New York, and Erie Insurance Property and Casualty Company and through its management of the Flagship City Insurance Company, a subsidiary of Erie Insurance Exchange.
(2) CNA Financial (CNA - Free Report) : This is a $42 stock with a market cap of $11.4B. It resides in the Insurance Property and Casualty industry. I see a Zacks Value score of A, a Zacks Growth score of D and a Zacks Momentum score of D.
Image Source: Zacks Investment Research
Headquartered in Chicago, IL, CNA Financial Corp. was established in 1853. It was incorporated in 1967. The company operates as a P&C insurer. It offers commercial P&C insurance products, mainly across the United States. It markets its products through independent agents, brokers, and general underwriters to small, medium, and large businesses; insurance companies; associations; professionals; and other groups in the marine, oil and gas, construction, manufacturing, life science, property, financial services, healthcare, and technology industries.
CNA's property and casualty and remaining life and group insurance operations are primarily conducted by Continental Casualty Company (CCC), The Continental Insurance Company, Western Surety Company, CNA Insurance Company Limited and Hardy Underwriting Bermuda Limited and its subsidiaries (Hardy).
Loews Corp. acts as the parent company, with 89% stake in its subsidiary (as on Dec 31, 2018), CNA Financial. The company’s P&C field structure consists of 49 underwriting locations across the United States.
CNA Financial classifies its operations through three core and two non-core segments.
(3) Assurant (AIZ - Free Report) : This is a $306 stock with a market cap of $15.7B. It resides in the Insurance Multi-line industry. I see a Zacks Value score of B, a Zacks Growth score of B and a Zacks Momentum score of C.
Image Source: Zacks Investment Research
Founded in 1969 and headquartered in New York, Assurant Inc. is a global provider of risk management solutions in the housing and lifestyle markets, protecting where people live and the goods they buy.
The company operates in North America, Latin America, Europe and Asia Pacific.
Assurant was incorporated in Delaware in 2004.
The company reports through three reportable segments: Global Lifestyle and Global Housing.
Global Lifestyle segment (78.5% of 2022 Net earned premiums) provides mobile device protection products and related services and extended service products and related services for consumer electronics and appliances (referred to as Connected Living); vehicle protection and related services (referred to as Global Automotive); and credit and other insurance products (referred to as Global Financial Services).
Global Lifestyle operates globally, with about 82% of its revenues from North America, 8% from Latin America, 5% from Europe and 5% from Asia Pacific for the year ended Dec 31, 2022.
Global Housing segment (21.5%) provides lender-placed homeowners insurance, lender-placed manufactured housing insurance, lender-placed flood insurance; and renters insurance and related products (referred to as Multifamily Housing), as well as voluntary manufactured housing and other insurance. This segment is comprised of two key lines of business, Homeowners and Renters and Other.
On Aug. 1st, 2018, Assurant sold its Mortgage Solutions business, which comprised property inspection and preservation, valuation and title services and other property risk management services.
Key Global Macro
On Monday, the RBA’s Governor Bullock gives a speech in Australia.
On Tuesday, Mainland China’s FDI data thru NOV comes out. The prior y/y reading was -9.4%.
The U.S. Consumer Price Indices (CPI) for NOV come out. Core ex-food and energy CPI has a +4.0% y/y prior reading to contend with. The NOV call is for a +0.2% m/m addition, in line with the +0.2% addition seen in OCT.
On Wednesday, the core U.S. PPI comes out for NOV. The monthly addition here is also for +0.2% m/m, a rise from +0.0% the prior month.
The FOMC rate decision comes out. As important, the update to the Fed’s Economics Projections come out. 5.6% was the ‘terminal’ Fed Funds rate a few months ago.
On Thursday, a two-day long E.U. leader’s summit begins.
The Swiss National Bank (SNB), the Bank of England (BoE), and the European Central Bank (ECB) all step up and offer monetary policy decisions. No change in policy rates is expected.
U.S. Retail Sales for NOV come out. Ex-autos, the consensus is looking for a -0.1% m/m decline, following a +0.1% m/m reading in OCT.
On Friday, the Euro Area HCOB manufacturing PMI comes out for DEC. The consensus has 44.5 for a flash reading on DEC, after 44.2 showed up in NOV.
To do a regional comparison, the U.S. global manufacturing PMI for DEC comes out too. I see a prior 49.4 reading appeared in NOV.
In short, Europe struggles, a touch, while the U.S. walks the ‘soft landing’ tightrope.
Conclusion
In the week ahead, I will be paying the bulk of my attention to the Fed’s latest economic projections.
The Fed’s September dot plot ‘terminal’ rate — at 5.6% — is a key summary metric, to watch for an end-of-year 2023 update.
The change in distribution, in the various regional bank’s assorted opinions, around that ‘terminal’ Fed Funds policy rate metric, is important.
So is the amount and timing of any project FOMC policy rate-cutting.
With a downward risk-free 10-year U.S. Treasury yield move of -87 basis points already in place, from 5.0% to 4.13%, the world’s bond traders have priced in a major re-set.
The world’s major financial markets are forward-looking, always.
Bond traders are called ‘the smart money.’
We shall see.
Happy trading and investing!
John Blank
Zacks Chief Equity Strategist and Economist