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There is rarely a dull moment in global financial markets.
The Global Week Ahead to come will be no exception, with:
Make-or-break U.S. PCE inflation data, and
Tough questions over international financing for Ukraine –
All against a backdrop of a fraught U.S. presidential race.
Q2-24 S&P500 earnings will be front and center, as members of the "Magnificent 7" report their results, along with major banks.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) On Friday, July 26th, the June Personal Consumption Expenditures (PCE) report is out.
U.S. inflation data on July 26th will test growing market expectations that the Fed is all but certain to cut interest rates in the coming months.
June's PCE price index is expected to have climbed +0.1% on a monthly basis, according to a Reuters poll.
The release of the PCE report comes after another inflation reading, the Consumer Price Index (CPI), fell in June for the first time in four years.
That cooler-than-expected report set off a rotation in equities and cemented market expectations that the Fed is primed to cut rates in September.
Several days after CPI, Fed Chair Jerome Powell said second-quarter inflation readings "add somewhat to confidence" that the pace of price increases is returning to the Fed's target in a sustainable fashion.
Investors will also be watching corporate results, as Tesla and Alphabet feature in a busy week for earnings.
(2) On Wednesday, a number of major European banks report earnings.
European banks' run of improving profitability and rising share prices faces its latest test, as second-quarter earnings get going in earnest.
Key is net interest income — which banks have seen surge thanks to higher rates — as the European Central Bank (ECB) looks to cut rates further and the Bank of England prepares to ease.
Investors will also want to see how lenders are faring as political uncertainty intensifies; French bank shares fell sharply during recent elections.
A busy Wednesday sees Germany's Deutsche Bank (DB - Free Report) , Britain's Lloyds (LYG - Free Report) , BNP Paribas in France, Spain's Santander (SAN - Free Report) and Italy's UniCredit all update investors, with more banks reporting the following week.
Analysts say the read-across from U.S. firms that have already reported is that stronger investment banking revenues should boost lenders with large investment bank arms such as Deutsche and Switzerland's UBS (UBS - Free Report) , but markets have little tolerance for interest income numbers that disappoint.
(3) Also on Wednesday, July 24th, flash JULY PMIs are out for the Eurozone.
The Eurozone economy is proving to be a huge dilemma for the European Central Bank, as overall growth has been sluggish, but strength in the dominant services sector, boosted by tourism, has kept inflation pressures uncomfortably high.
Flash purchasing managers' indices out on July 24th will show if the ECB's challenge is getting any easier.
The Eurozone PMIs, based on business managers' observations of price and demand trends, could be especially influential after the ECB held interest rates at 3.75% and resisted offering future guidance, saying it was “data-dependent."
The central bank, which lowered borrowing costs for the first time in five years in June, does see inflation moderating.
Money markets are firmly pricing a September rate cut, supporting Eurozone stocks, government bonds and the euro for now, but also raising the threat level of any PMI result that could shift the ECB's view.
(4) On Friday, July 26th, Japanese Consumer Price Inflation data also comes out.
The Tokyo inflation report on July 26th will be the final check-in on consumer prices before the Bank of Japan (BOJ) meets on July 31st, where the prospects of a rate hike from the central bank remain a toss-up.
An acceleration in July's inflation figures could feed expectations for further monetary policy tightening in the near term, though a slowdown would likely see those bets unwind and weigh on the yen.
Analysts say cost pressures from a weak yen, which has fallen some 10% against the dollar this year, could heighten the chance of inflation staying well above the BOJ's 2% target, though that has also inadvertently hurt households.
While Tokyo's latest rounds of suspected intervention have hauled the currency away from a 38-year low, any impact is likely to be short-lived until rate differentials with the U.S. narrow.
(5) Ukraine in the spotlight.
News that Donald Trump has chosen J.D. Vance as his running mate for November's presidential election has reverberated particularly sharply in emerging markets and nowhere more so than Ukraine.
Trump has long-promised to broker an end to its war with Russia and in Vance he has picked someone who has publicly questioned whether supporting Kyiv is necessarily in the U.S.' interests.
For markets, that is something to watch.
Ukraine has just proposed its first wartime hike in taxes and is intensifying talks on a $20 billion sovereign debt restructuring with the likes of BlackRock and PIMCO. Eastern European currencies are getting twitchy again.
The U.S. reducing its weapons and support would be a catastrophe for Ukraine. But a swift deal to end hostilities could mean the massive reconstruction effort starts far sooner than many had hoped, even if it would leave plenty of lingering doubts.
Zacks #1 Rank (STRONG BUY) Stocks
(1) Micron Technology (MU - Free Report) : This is a $117 stock with a market cap of $130.2B, in the semiconductor memory industry. I see a Zacks Value score of F, a Zacks Growth score of B, and a Zacks Momentum score of B.
Image Source: Zacks Investment Research
Idaho-based Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions. Through global brands, namely Micron, Crucial and Ballistix, Micron manufactures and markets high-performance memory and storage technologies including Dynamic Random Access Memory (DRAM), NAND flash memory, NOR Flash, 3D XPoint memory and other technologies.
Its solutions are used in leading-edge computing, consumer, networking and mobile products.
A major portion of the revenues is derived from DRAM sales. The company's mission is to be the most efficient and innovative global provider of semiconductor memory solutions.
Micron reported revenues of $15.54 billion in fiscal 2023.
The company has four reportable segments:
Compute and Networking Business Unit (CNBU): The unit comprises of DRAM and NOR Flash products that are sold to the computer, networking, graphics, and cloud server markets, and NAND Flash products which are sold into the networking market. CNBU delivered revenues of $5.71 billion (37% of total revenues) in fiscal 2023.
Mobile Business Unit (MBU): The unit comprises Micron’s discrete DRAM, discrete NAND and managed NAND (including eMMC and universal flash storage (UFS) solutions) products that are sold to smartphone and other mobile-device markets. MBU generated revenues of $3.63 billion (23%) in fiscal 2023.
Storage Business Unit (SBU): The unit accounts for solid state drives (SSDs) and component-level solutions sold into enterprise and cloud, client and consumer storage markets as well as other discrete storage products sold in component and wafer forms to the removable storage markets. SBU’s revenues grossed $2.55 billion (16%) in fiscal 2023.
Embedded Business Unit (EBU): The unit includes Micron’s discrete DRAM, discrete NAND, managed NAND and NOR products, which are sold to the automotive, industrial and consumer markets. EBU’s revenues logged $3.64 billion (24%) in fiscal 2023.
The company struggles with intense competition from Intel, Samsung Electronics, SK Hynix, Toshiba Memory and Western Digital Co.
(2) Arista Networks (ANET - Free Report) : This is a $332 stock with a market cap of $104.3B, in the communication components industry. I see a Zacks Value score of F, a Zacks Growth score of B and a Zacks Momentum score of A.
Image Source: Zacks Investment Research
Santa Clara, CA-based Arista Networks, Inc. is engaged in providing cloud networking solutions for data centers and cloud computing environments. The company offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for next generation data center networks.
Arista uses multiple silicon architectures across its products. At the core of the company’s cloud networking solutions is the Linux-based Extensible Operating System (EOS), which was architected to be fully programmable and highly modular.
EOS supports leading cloud and virtualization solutions, including Microsoft System Center, OpenStack and other cloud management frameworks. The company co-authored the Virtual Extensible LAN (VXLAN) protocol specification with VMware and was the first to demonstrate VXLAN integration. Moreover, it has now expanded VXLAN routing and integration.
In 2015, Arista introduced CloudVision, a network-wide approach for workload orchestration and workflow automation delivering a turnkey solution for cloud networking. In 2019, Arista introduced 10 new 400G platforms. In the Leaf/Spine High Network Radix category, it offers two new fixed 32 port 400G switches, and a 128 port 100G/32 port 400G modular switch. For the Universal Leaf a nd Spine category of switching, the company introduced R3 series 100G and 400G products supporting up to 2.5M routes on its 7280R3 series fixed and 7500R3 series modular platforms.
Arista introduced a modular family called the 7800R3, a high density 100G and 400G platform supporting up to 460 Tbps of system throughput. Also, it launched the 720XP Series of fixed Power over Ethernet (PoE) leaf switches with 60W PoE, enabling it to offer a complete end-to-end solution for cognitive campus Ethernet as well as the introduction of WiFi-6 wireless Access Points (APs).
The company serves five verticals, namely –
Cloud titans (customers that deploy more than one million servers)
Cloud specialty providers
Service providers
Financial services and
Rest of enterprise
Arista’s customers include six of the largest cloud service providers based on annual revenues. In 2023, total revenues were $5.86 billion.
(3) Shopify (SHOP - Free Report) : This is a $63 stock with a market cap of $81.3B, in the internet services industry. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of A.
Image Source: Zacks Investment Research
Ottawa, Canada-based Shopify Inc. provides a multi-tenant, cloud-based, multi-channel commerce platform that helps in starting, scaling, marketing, and running a business. Its platform and services are engineered for simplicity and reliability, while delivering a better shopping experience for customers everywhere.
Merchants use the company’s software to run business across various sales channels, including web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces.
Shopify Dashboard, which is available in more than 20 languages, enables merchants to manage products and inventory, process orders and payments, ship orders, build customer relationships and leverage analytics along with reporting from one integrated back office.
Moreover, Shopify hosts a huge database of merchant and customer interactions. Merchants leverage this transactional dataset to get meaningful insight into the sales channel growth prospects and consumer behavioral aspects. This improves their ability to target prospective customers more easily, which drives sales growth.
Apart from the company’s own payment solution, payment wallets like Apple Pay, Meta Pay, Amazon Pay and Google Pay is also available to the merchants, which they offer to customers for completing transaction done on the Shopify platform.
In 2023, revenues came in at $7.06 billion.
The company generates revenues from two sources:
Subscriptions Solutions (26% of 2023 revenues), and
Merchant Solutions (74%)
Subscription revenue is recognized on a ratable basis over the contractual term. The terms range from monthly, annual or multi-year subscription terms. The company earns revenue based on the services it delivers either directly to merchants or indirectly through resellers.
Shopify generates the majority of merchant solutions revenue from fees that it charges merchants on their customer orders processed through Shopify Payments.
The company also derives merchant solutions revenue relating to Shopify Shipping, Shopify Capital, other transaction services and referral fees, as well as from the sale of Point-of-Sale (POS) hardware.
Key Global Macro
Thursday’s U.S. Q2 GDP reading, and Friday’s core PCE print are the key moments.
On Monday, there is a People’s Bank of China (PBoC) interest rate decision. 3.45% is the current loan policy rate.
On Tuesday, U.S. existing home sales for June should be 4M, down from 4.11M the prior month.
On Wednesday, Japan’s Jibun Bank manufacturing PMI is out for July. The prior reading was 50.
The Eurozone’s HCOB manufacturing PMI for July should be 46.3, up from a prior 45.8.
There is a Bank of Canada (BoC) monetary policy report and a press conference.
On Thursday, the ‘advance’ Q2-24 U.S. real GDP growth is out. +1.4% was seen in Q1-24. +2.0% is the consensus for Q2-24.
On Friday, the U.S. PCE price index should be up +0.1% m/m in June. The prior y/y core PCE reading (the Fed’s preferred economy-wide consumer inflation metric) is +2.6% y/y.
Conclusion
Finally, Zacks Research Director Sheraz Mian’s July 17th Q2 earnings update—
(1) We are off to a good start in the Q2 earnings season, with the growth pace steadily improving, an above-average proportion of companies beating EPS estimates, and companies generally providing a reassuring outlook for the coming periods.
This should help sustain the favorable revisions trend that we experienced ahead of the start of the Q2 earnings season.
(2) Partly offsetting the above positive take is companies’ difficulty in beating consensus revenue estimates.
The Q2 revenue beats percentage is the lowest of the preceding 20-quarter period, at this stage of the reporting cycle.
(3) For the 45 S&P500 companies that have reported Q2 results, total earnings are up +8.7% from the same period last year on +5.2% higher revenues.
(4) Except for the revenue beats percentage, which at 55.6% is the lowest for this group of 45 index members over the preceding 20-quarter period, all of the other performance metrics are tracking better relative to what we have seen in other recent periods.
The noted Q2 revenue growth slowdown, seen across the S&P500 by Zacks, has been engineered by the FOMC, with their policy rate hiking.
Now, where does the FOMC go from here?
The fresh core PCE rate for JUNE will be a major assist, in answering that question.
That’s it for me!
John Blank, PhD Zacks Chief Equity Strategist and Economist
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The "Mag 7" Report: Global Week Ahead
There is rarely a dull moment in global financial markets.
The Global Week Ahead to come will be no exception, with:
Q2-24 S&P500 earnings will be front and center, as members of the "Magnificent 7" report their results, along with major banks.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) On Friday, July 26th, the June Personal Consumption Expenditures (PCE) report is out.
U.S. inflation data on July 26th will test growing market expectations that the Fed is all but certain to cut interest rates in the coming months.
June's PCE price index is expected to have climbed +0.1% on a monthly basis, according to a Reuters poll.
The release of the PCE report comes after another inflation reading, the Consumer Price Index (CPI), fell in June for the first time in four years.
That cooler-than-expected report set off a rotation in equities and cemented market expectations that the Fed is primed to cut rates in September.
Several days after CPI, Fed Chair Jerome Powell said second-quarter inflation readings "add somewhat to confidence" that the pace of price increases is returning to the Fed's target in a sustainable fashion.
Investors will also be watching corporate results, as Tesla and Alphabet feature in a busy week for earnings.
(2) On Wednesday, a number of major European banks report earnings.
European banks' run of improving profitability and rising share prices faces its latest test, as second-quarter earnings get going in earnest.
Key is net interest income — which banks have seen surge thanks to higher rates — as the European Central Bank (ECB) looks to cut rates further and the Bank of England prepares to ease.
Investors will also want to see how lenders are faring as political uncertainty intensifies; French bank shares fell sharply during recent elections.
A busy Wednesday sees Germany's Deutsche Bank (DB - Free Report) , Britain's Lloyds (LYG - Free Report) , BNP Paribas in France, Spain's Santander (SAN - Free Report) and Italy's UniCredit all update investors, with more banks reporting the following week.
Analysts say the read-across from U.S. firms that have already reported is that stronger investment banking revenues should boost lenders with large investment bank arms such as Deutsche and Switzerland's UBS (UBS - Free Report) , but markets have little tolerance for interest income numbers that disappoint.
(3) Also on Wednesday, July 24th, flash JULY PMIs are out for the Eurozone.
The Eurozone economy is proving to be a huge dilemma for the European Central Bank, as overall growth has been sluggish, but strength in the dominant services sector, boosted by tourism, has kept inflation pressures uncomfortably high.
Flash purchasing managers' indices out on July 24th will show if the ECB's challenge is getting any easier.
The Eurozone PMIs, based on business managers' observations of price and demand trends, could be especially influential after the ECB held interest rates at 3.75% and resisted offering future guidance, saying it was “data-dependent."
The central bank, which lowered borrowing costs for the first time in five years in June, does see inflation moderating.
Money markets are firmly pricing a September rate cut, supporting Eurozone stocks, government bonds and the euro for now, but also raising the threat level of any PMI result that could shift the ECB's view.
(4) On Friday, July 26th, Japanese Consumer Price Inflation data also comes out.
The Tokyo inflation report on July 26th will be the final check-in on consumer prices before the Bank of Japan (BOJ) meets on July 31st, where the prospects of a rate hike from the central bank remain a toss-up.
An acceleration in July's inflation figures could feed expectations for further monetary policy tightening in the near term, though a slowdown would likely see those bets unwind and weigh on the yen.
Analysts say cost pressures from a weak yen, which has fallen some 10% against the dollar this year, could heighten the chance of inflation staying well above the BOJ's 2% target, though that has also inadvertently hurt households.
While Tokyo's latest rounds of suspected intervention have hauled the currency away from a 38-year low, any impact is likely to be short-lived until rate differentials with the U.S. narrow.
(5) Ukraine in the spotlight.
News that Donald Trump has chosen J.D. Vance as his running mate for November's presidential election has reverberated particularly sharply in emerging markets and nowhere more so than Ukraine.
Trump has long-promised to broker an end to its war with Russia and in Vance he has picked someone who has publicly questioned whether supporting Kyiv is necessarily in the U.S.' interests.
For markets, that is something to watch.
Ukraine has just proposed its first wartime hike in taxes and is intensifying talks on a $20 billion sovereign debt restructuring with the likes of BlackRock and PIMCO. Eastern European currencies are getting twitchy again.
The U.S. reducing its weapons and support would be a catastrophe for Ukraine. But a swift deal to end hostilities could mean the massive reconstruction effort starts far sooner than many had hoped, even if it would leave plenty of lingering doubts.
Zacks #1 Rank (STRONG BUY) Stocks
(1) Micron Technology (MU - Free Report) : This is a $117 stock with a market cap of $130.2B, in the semiconductor memory industry. I see a Zacks Value score of F, a Zacks Growth score of B, and a Zacks Momentum score of B.
Image Source: Zacks Investment Research
Idaho-based Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions. Through global brands, namely Micron, Crucial and Ballistix, Micron manufactures and markets high-performance memory and storage technologies including Dynamic Random Access Memory (DRAM), NAND flash memory, NOR Flash, 3D XPoint memory and other technologies.
Its solutions are used in leading-edge computing, consumer, networking and mobile products.
A major portion of the revenues is derived from DRAM sales. The company's mission is to be the most efficient and innovative global provider of semiconductor memory solutions.
Micron reported revenues of $15.54 billion in fiscal 2023.
The company has four reportable segments:
The company struggles with intense competition from Intel, Samsung Electronics, SK Hynix, Toshiba Memory and Western Digital Co.
(2) Arista Networks (ANET - Free Report) : This is a $332 stock with a market cap of $104.3B, in the communication components industry. I see a Zacks Value score of F, a Zacks Growth score of B and a Zacks Momentum score of A.
Image Source: Zacks Investment Research
Santa Clara, CA-based Arista Networks, Inc. is engaged in providing cloud networking solutions for data centers and cloud computing environments. The company offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for next generation data center networks.
Arista uses multiple silicon architectures across its products. At the core of the company’s cloud networking solutions is the Linux-based Extensible Operating System (EOS), which was architected to be fully programmable and highly modular.
EOS supports leading cloud and virtualization solutions, including Microsoft System Center, OpenStack and other cloud management frameworks. The company co-authored the Virtual Extensible LAN (VXLAN) protocol specification with VMware and was the first to demonstrate VXLAN integration. Moreover, it has now expanded VXLAN routing and integration.
In 2015, Arista introduced CloudVision, a network-wide approach for workload orchestration and workflow automation delivering a turnkey solution for cloud networking. In 2019, Arista introduced 10 new 400G platforms. In the Leaf/Spine High Network Radix category, it offers two new fixed 32 port 400G switches, and a 128 port 100G/32 port 400G modular switch. For the Universal Leaf a nd Spine category of switching, the company introduced R3 series 100G and 400G products supporting up to 2.5M routes on its 7280R3 series fixed and 7500R3 series modular platforms.
Arista introduced a modular family called the 7800R3, a high density 100G and 400G platform supporting up to 460 Tbps of system throughput. Also, it launched the 720XP Series of fixed Power over Ethernet (PoE) leaf switches with 60W PoE, enabling it to offer a complete end-to-end solution for cognitive campus Ethernet as well as the introduction of WiFi-6 wireless Access Points (APs).
The company serves five verticals, namely –
Arista’s customers include six of the largest cloud service providers based on annual revenues. In 2023, total revenues were $5.86 billion.
(3) Shopify (SHOP - Free Report) : This is a $63 stock with a market cap of $81.3B, in the internet services industry. I see a Zacks Value score of F, a Zacks Growth score of A and a Zacks Momentum score of A.
Image Source: Zacks Investment Research
Ottawa, Canada-based Shopify Inc. provides a multi-tenant, cloud-based, multi-channel commerce platform that helps in starting, scaling, marketing, and running a business. Its platform and services are engineered for simplicity and reliability, while delivering a better shopping experience for customers everywhere.
Merchants use the company’s software to run business across various sales channels, including web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces.
Shopify Dashboard, which is available in more than 20 languages, enables merchants to manage products and inventory, process orders and payments, ship orders, build customer relationships and leverage analytics along with reporting from one integrated back office.
Moreover, Shopify hosts a huge database of merchant and customer interactions. Merchants leverage this transactional dataset to get meaningful insight into the sales channel growth prospects and consumer behavioral aspects. This improves their ability to target prospective customers more easily, which drives sales growth.
Apart from the company’s own payment solution, payment wallets like Apple Pay, Meta Pay, Amazon Pay and Google Pay is also available to the merchants, which they offer to customers for completing transaction done on the Shopify platform.
In 2023, revenues came in at $7.06 billion.
The company generates revenues from two sources:
Subscription revenue is recognized on a ratable basis over the contractual term. The terms range from monthly, annual or multi-year subscription terms. The company earns revenue based on the services it delivers either directly to merchants or indirectly through resellers.
Shopify generates the majority of merchant solutions revenue from fees that it charges merchants on their customer orders processed through Shopify Payments.
The company also derives merchant solutions revenue relating to Shopify Shipping, Shopify Capital, other transaction services and referral fees, as well as from the sale of Point-of-Sale (POS) hardware.
Key Global Macro
Thursday’s U.S. Q2 GDP reading, and Friday’s core PCE print are the key moments.
On Monday, there is a People’s Bank of China (PBoC) interest rate decision. 3.45% is the current loan policy rate.
On Tuesday, U.S. existing home sales for June should be 4M, down from 4.11M the prior month.
On Wednesday, Japan’s Jibun Bank manufacturing PMI is out for July. The prior reading was 50.
The Eurozone’s HCOB manufacturing PMI for July should be 46.3, up from a prior 45.8.
There is a Bank of Canada (BoC) monetary policy report and a press conference.
On Thursday, the ‘advance’ Q2-24 U.S. real GDP growth is out. +1.4% was seen in Q1-24. +2.0% is the consensus for Q2-24.
On Friday, the U.S. PCE price index should be up +0.1% m/m in June. The prior y/y core PCE reading (the Fed’s preferred economy-wide consumer inflation metric) is +2.6% y/y.
Conclusion
Finally, Zacks Research Director Sheraz Mian’s July 17th Q2 earnings update—
(1) We are off to a good start in the Q2 earnings season, with the growth pace steadily improving, an above-average proportion of companies beating EPS estimates, and companies generally providing a reassuring outlook for the coming periods.
This should help sustain the favorable revisions trend that we experienced ahead of the start of the Q2 earnings season.
(2) Partly offsetting the above positive take is companies’ difficulty in beating consensus revenue estimates.
The Q2 revenue beats percentage is the lowest of the preceding 20-quarter period, at this stage of the reporting cycle.
(3) For the 45 S&P500 companies that have reported Q2 results, total earnings are up +8.7% from the same period last year on +5.2% higher revenues.
82.2% beat EPS estimates. 55.6% beat revenue estimates.
(4) Except for the revenue beats percentage, which at 55.6% is the lowest for this group of 45 index members over the preceding 20-quarter period, all of the other performance metrics are tracking better relative to what we have seen in other recent periods.
The noted Q2 revenue growth slowdown, seen across the S&P500 by Zacks, has been engineered by the FOMC, with their policy rate hiking.
Now, where does the FOMC go from here?
The fresh core PCE rate for JUNE will be a major assist, in answering that question.
That’s it for me!
John Blank, PhD
Zacks Chief Equity Strategist and Economist