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Don't go anywhere: An event-packed Global Week Ahead is coming up.
Central banks — from the United States to Brazil, and from Europe to Japan — meet.
The Federal Reserve should deliver its first interest rate cut in four years
Brazil could hike for the first time since 2022 and
Japan will be mindful of volatile markets, as it mulls when to lift rates again
But it is not all about central banks.
UniCredit's move on Commerzbank is reviving M&A talk among European banks.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) On Wednesday, After a 2-day FOMC Meeting, Very Likely a U.S. Fed Policy Rate Cut Happens.
The Fed is tipped to conclude a two-day meeting on Wednesday with its first rate cut of this cycle. The key question now is how much and how fast easing comes.
The recent debate has centered on whether the Fed would opt for a 25-basis-point (bps) or 50 bps September cut. Odds have tipped in favor of a smaller move after data showed consumer prices rose slightly in August, but core inflation was a bit stickier.
Fed Chair Jerome Powell's news conference will be scrutinized for hints of the potential pace of rate cuts. August employment data was weaker-than-expected for a second straight month, raising some concern the Fed may be too late with easing.
Traders still price over 100 bps of Fed cuts by year-end, creating a potential disconnect between markets and the Fed's dot-plot projections.
(2) Also Wednesday, Brazil’s Central Bank Sets Monetary Policy. But With a Hike!
Also on Wednesday, Brazil's central bank is expected to diverge from the Fed by kicking off a tightening cycle given above-target inflation at 4.25% and stronger-than-expected growth in Latin America's largest economy.
Since keeping rates at 10.50% in July, the bank has hinted it could raise borrowing costs to meet its 3% inflation target.
The hawkish stance, reinforced by incoming Governor Gabriel Galipolo, has fueled bets on a forthcoming 25 bps hike that could bolster Brazil’s currency, the real.
But Brazil is an outlier among emerging economies.
In South Africa, where inflation is nearing its target, policymakers are expected to trim rates for the first time in four years on Thursday.
Turkey is expected to hold rates at 50% the same day, but potentially cut in November.
Indonesia's central bank, meeting on Wednesday, has flagged a possible fourth-quarter rate cut.
(3) On Thursday, the Bank of England (BoE) and Norway’s Norges Bank Keep Policy Rates.
The Bank of England and Norges Bank are expected to keep rates unchanged when they meet on Thursday. The BoE is tipped to ease twice more by year-end and Norway could start easing by then.
It is hard for anyone, including possibly the world's top central bankers themselves, to have much confidence in such forecasts. Any surprises from the Fed could potentially upend the global monetary policy outlook.
An unexpectedly dovish Fed could weaken the dollar, alter inflation projections for nations, such as Britain that import dollar-priced commodities and prompt Norges Bank to support the oil-linked crown.
Fed commentary that casts doubt over steady easing from here could boost the dollar and tighten financial conditions worldwide.
Investors rely on market forecasts for central bank policy. It might be best to ignore them for now.
(4) On Friday, the Bank of Japan (BoJ) is Not Expected to Change its Policy Rates.
The only way for Japanese rates is up. At least, that is what Bank of Japan policymakers suggest, though doing so this month would come as a huge surprise.
The BOJ is not expected to change rates at its policy meeting, which ends on Friday, with focus on the tightening path ahead following two hikes already this year.
Going against the tide of global easing, BOJ policymakers have expressed their resolve to raise rates further, so long as markets behave and economic conditions remain favorable.
That has helped the yen, which is up more than +10% from July's 38-year low, though investors remain nervous about any further unwinding of yen-funded carry trades that could spark renewed volatility.
(5) Is European M&A for Banks Back On?
UniCredit's (UNCRY - Free Report) swoop on Commerzbank (CRZBY - Free Report) has sparked speculation that long-awaited European banking M&A is back.
The Italian bank unveiled a 9% stake in the German lender — half of it bought directly from the German state. UniCredit CEO Andrea Orcel is keen to buy more or even take Commerzbank over should it want a tie-up.
Investors are now watching whether Orcel can overcome the many hurdles that have stymied previous deals among European banks, including political opposition, and if more banks begin angling for other deals.
Possibilities are numerous. In the meantime, investors are buying banking shares. Commerzbank shares rallied nearly +20% in two days, the European bank index (SX7P) gained almost +2%.
Zacks #1 Rank (STRONG BUY) Stocks
(1) MTU Aero Engines (MTUAY - Free Report) : This is a $152 a share stock, found in the Aerospace & Defense industry group, with a market cap of $16.3B. I see a Zacks Value score of D, a Zacks Growth score of B and a Zacks Momentum score of F.
MTU Aero Engines Holding AG engages in the development, manufacture, marketing and support of commercial and military aircraft engines in all thrust and power categories and industrial gas turbines both nationally and internationally.
The company operates in two segments, OEM business and MRO business.
The OEM business segment designs and manufactures modules and components, and carries out final assembly work on complete engines; and offers commercial and military engine products, spare parts for commercial and military engines, and military MRO develops and manufactures industrial gas turbines.
It also develops and manufactures engine modules and components, and spare parts; supervises engine final assembly; and provides maintenance support for the military market.
MTU Aero Engines Holding AG is headquartered in Munich, Germany.
(2) Universal Health Services (UHS - Free Report) : This is a $231 a share stock, found in the Medical-Hospital industry group, with a market cap of $15.3B. I see a Zacks Value score of A, a Zacks Growth score of A and a Zacks Momentum score of A.
Image Source: Zacks Investment Research
Universal Health Services Inc. owns and operates acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers.
The company's range of services include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services.
The company, through its subsidiaries, operates inpatient acute care hospitals and behavioral health facilities and outpatient and other facilities.
Acute Care - The segment includes inpatient acute care hospitals, free-standing emergency departments and outpatient surgery/cancer care centers and surgical hospital.
Behavioral Health Care - The segment includes inpatient behavioral healthcare facilities and outpatient behavioral healthcare facilities, inpatient behavioral healthcare facilities and outpatient behavioral healthcare facilities.
(3) Aspen Technology (AZPN - Free Report) : This is a $225 a share stock, found in the Internet-Software industry group, with a market cap of $14.2B. I see a Zacks Value score of F, a Zacks Growth score of C and a Zacks Momentum score of C.
Image Source: Zacks Investment Research
Bedford, MA-based Aspen Technology Inc. provides asset optimization software solutions.
The company's solutions aid customers in asset-intensive industries in addressing the twin problem of fulfilling the growing resource demand of a population that is expanding quickly while simultaneously conducting business in a more sustainable way. The solutions enable clients to run their assets safer and faster in complex situations where it is vital to optimize across the complete asset lifecycle, including asset design, operation and maintenance.
Following the Emerson transaction, the company has expanded its portfolio to five product suites: Performance Engineering (ENG), Manufacturing and Supply Chain (MSC), Asset Performance Management (APM), Digital Grid Management (DGM) and Subsurface Science & Engineering (SSE).
The company serves customers across a wide range of asset-intensive industries like energy, bulk and specialty chemicals, engineering and construction, power and utilities, metals and mining, and pharmaceuticals.
In fiscal 2024, the company generated revenues of $1,127.5 million. Aspen Technology reports in three segments, namely License, Maintenance and Services and other.
License revenue (67.4% of fourth-fiscal 2024 revenues) represents the term software licenses sold by Heritage AspenTech and SSE and integrated solutions sold by OSI Inc.
Maintenance revenues (31% of third-fiscal 2024 revenues) represent technical support, software assurance patch management services and the right to receive any “when-and-if available” updates to software
Meanwhile, Services and other revenues (6.6% of fourth-fiscal 2024 revenues) comprise training and professional services
Key Global Macro
The FOMC meeting, presser and their latest macro projections, out on Wednesday, is the main market event.
On Monday, Mainland China celebrates a Mid-Autumn Festival.
On Tuesday, U.S. Retail Sales for AUG come out. Expect +0.2% m/m, with a +1.0% m/m in the prior JULY data. Ex-auto should be +0.3% m/m, with +0.4% m/m in JULY.
On Wednesday, U.S. Housing Starts (Expect 1.25M with 1.38M as the prior JULY data) and building permits come out for AUG (Expect 1.41M, with 1.406M as the prior).
The FOMC rate decision lands. Chair Powell holds a presser.
FOMC economic projections also get updated. This is key! Currently, they show a 4.1% policy rate in the 1st year, 3.1% in the 2nd year, 2.9% in the 3rd year.
On Thursday, U.S. leading indicators for AUG come out. The prior was -0.6%.
Australia’s unemployment rate should remain steady at 4.2% in AUG.
The Bank of England (BoE) should keep its monetary policy rate at 5.0%.
Japan’s national CPI ex-fresh food for AUG should be +2.8% y/y, up from +2.7% y/y.
On Friday, there is a People’s Bank of China (PBoC) policy rate decision. 3.35% is the current mark.
There is the Bank of Japan (BoJ) policy rate decision. It is currently at 0.15%. There will be a BoJ presser.
U.K. retail sales for AUG come out. The prior reading was +0.5% m/m, with ex-fuel at +0.7% m/m.
Conclusion
On Sept. 11th, Zacks Research Director Sheraz Mian, offered up 4 key points, on the looming Q3-24 earnings season—
(1) Estimates for Q3-24 have come down since the start of the period.
The magnitude of estimate cuts are significantly bigger than what we had seen in the comparable periods of the year's first two quarters.
This negative shift in the revisions trend reverses the prior favorable development -- on this front in recent quarters.
(2) Zacks expects total S&P500 earnings to be up +3.9% from the same period last year on +4.6% higher revenues.
Estimates have steadily come down since the start of the period, with the current +3.9% growth pace down from +6.9% at the start of July.
(3) For the Technology sector, Q3-24 is expected to be the 5th quarter in a row of double-digit earnings growth (up +11.2%).
Excluding the Tech sector’s contribution?
Q3-24 earnings for the rest of the index would be up only +1.1%.
(4) Q3-24 earnings for the ‘Magnificent 7’ companies are expected to be up +17% from the same period last year on +13.5% higher revenues.
This would follow the +35.2% earnings growth on +14.7% higher revenues in Q2-24.
Excluding the ‘Mag 7’?
Q3-24 EPS growth for the rest of the index would be +3.6% (versus +3.9% otherwise).
The latest Q3 earnings data from Zacks’ Sheraz Mian confirms it: Tech is still where the EPS outperformance can be best found.
Enjoy an excellent week, trading or investing!
Warm Regards,
John Blank, PhD Zacks Chief Equity Strategist and Economist
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U.S. Fed Rate Cuts! Global Week Ahead
Don't go anywhere: An event-packed Global Week Ahead is coming up.
Central banks — from the United States to Brazil, and from Europe to Japan — meet.
But it is not all about central banks.
UniCredit's move on Commerzbank is reviving M&A talk among European banks.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) On Wednesday, After a 2-day FOMC Meeting, Very Likely a U.S. Fed Policy Rate Cut Happens.
The Fed is tipped to conclude a two-day meeting on Wednesday with its first rate cut of this cycle. The key question now is how much and how fast easing comes.
The recent debate has centered on whether the Fed would opt for a 25-basis-point (bps) or 50 bps September cut. Odds have tipped in favor of a smaller move after data showed consumer prices rose slightly in August, but core inflation was a bit stickier.
Fed Chair Jerome Powell's news conference will be scrutinized for hints of the potential pace of rate cuts. August employment data was weaker-than-expected for a second straight month, raising some concern the Fed may be too late with easing.
Traders still price over 100 bps of Fed cuts by year-end, creating a potential disconnect between markets and the Fed's dot-plot projections.
(2) Also Wednesday, Brazil’s Central Bank Sets Monetary Policy. But With a Hike!
Also on Wednesday, Brazil's central bank is expected to diverge from the Fed by kicking off a tightening cycle given above-target inflation at 4.25% and stronger-than-expected growth in Latin America's largest economy.
Since keeping rates at 10.50% in July, the bank has hinted it could raise borrowing costs to meet its 3% inflation target.
The hawkish stance, reinforced by incoming Governor Gabriel Galipolo, has fueled bets on a forthcoming 25 bps hike that could bolster Brazil’s currency, the real.
But Brazil is an outlier among emerging economies.
In South Africa, where inflation is nearing its target, policymakers are expected to trim rates for the first time in four years on Thursday.
Turkey is expected to hold rates at 50% the same day, but potentially cut in November.
Indonesia's central bank, meeting on Wednesday, has flagged a possible fourth-quarter rate cut.
(3) On Thursday, the Bank of England (BoE) and Norway’s Norges Bank Keep Policy Rates.
The Bank of England and Norges Bank are expected to keep rates unchanged when they meet on Thursday. The BoE is tipped to ease twice more by year-end and Norway could start easing by then.
It is hard for anyone, including possibly the world's top central bankers themselves, to have much confidence in such forecasts. Any surprises from the Fed could potentially upend the global monetary policy outlook.
An unexpectedly dovish Fed could weaken the dollar, alter inflation projections for nations, such as Britain that import dollar-priced commodities and prompt Norges Bank to support the oil-linked crown.
Fed commentary that casts doubt over steady easing from here could boost the dollar and tighten financial conditions worldwide.
Investors rely on market forecasts for central bank policy. It might be best to ignore them for now.
(4) On Friday, the Bank of Japan (BoJ) is Not Expected to Change its Policy Rates.
The only way for Japanese rates is up. At least, that is what Bank of Japan policymakers suggest, though doing so this month would come as a huge surprise.
The BOJ is not expected to change rates at its policy meeting, which ends on Friday, with focus on the tightening path ahead following two hikes already this year.
Going against the tide of global easing, BOJ policymakers have expressed their resolve to raise rates further, so long as markets behave and economic conditions remain favorable.
That has helped the yen, which is up more than +10% from July's 38-year low, though investors remain nervous about any further unwinding of yen-funded carry trades that could spark renewed volatility.
(5) Is European M&A for Banks Back On?
UniCredit's (UNCRY - Free Report) swoop on Commerzbank (CRZBY - Free Report) has sparked speculation that long-awaited European banking M&A is back.
The Italian bank unveiled a 9% stake in the German lender — half of it bought directly from the German state. UniCredit CEO Andrea Orcel is keen to buy more or even take Commerzbank over should it want a tie-up.
Investors are now watching whether Orcel can overcome the many hurdles that have stymied previous deals among European banks, including political opposition, and if more banks begin angling for other deals.
Possibilities are numerous. In the meantime, investors are buying banking shares. Commerzbank shares rallied nearly +20% in two days, the European bank index (SX7P) gained almost +2%.
Zacks #1 Rank (STRONG BUY) Stocks
(1) MTU Aero Engines (MTUAY - Free Report) : This is a $152 a share stock, found in the Aerospace & Defense industry group, with a market cap of $16.3B. I see a Zacks Value score of D, a Zacks Growth score of B and a Zacks Momentum score of F.
MTU Aero Engines Holding AG engages in the development, manufacture, marketing and support of commercial and military aircraft engines in all thrust and power categories and industrial gas turbines both nationally and internationally.
The company operates in two segments, OEM business and MRO business.
The OEM business segment designs and manufactures modules and components, and carries out final assembly work on complete engines; and offers commercial and military engine products, spare parts for commercial and military engines, and military MRO develops and manufactures industrial gas turbines.
It also develops and manufactures engine modules and components, and spare parts; supervises engine final assembly; and provides maintenance support for the military market.
MTU Aero Engines Holding AG is headquartered in Munich, Germany.
(2) Universal Health Services (UHS - Free Report) : This is a $231 a share stock, found in the Medical-Hospital industry group, with a market cap of $15.3B. I see a Zacks Value score of A, a Zacks Growth score of A and a Zacks Momentum score of A.
Image Source: Zacks Investment Research
Universal Health Services Inc. owns and operates acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers.
The company's range of services include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services.
The company, through its subsidiaries, operates inpatient acute care hospitals and behavioral health facilities and outpatient and other facilities.
Acute Care - The segment includes inpatient acute care hospitals, free-standing emergency departments and outpatient surgery/cancer care centers and surgical hospital.
Behavioral Health Care - The segment includes inpatient behavioral healthcare facilities and outpatient behavioral healthcare facilities, inpatient behavioral healthcare facilities and outpatient behavioral healthcare facilities.
(3) Aspen Technology (AZPN - Free Report) : This is a $225 a share stock, found in the Internet-Software industry group, with a market cap of $14.2B. I see a Zacks Value score of F, a Zacks Growth score of C and a Zacks Momentum score of C.
Image Source: Zacks Investment Research
Bedford, MA-based Aspen Technology Inc. provides asset optimization software solutions.
The company's solutions aid customers in asset-intensive industries in addressing the twin problem of fulfilling the growing resource demand of a population that is expanding quickly while simultaneously conducting business in a more sustainable way. The solutions enable clients to run their assets safer and faster in complex situations where it is vital to optimize across the complete asset lifecycle, including asset design, operation and maintenance.
Following the Emerson transaction, the company has expanded its portfolio to five product suites: Performance Engineering (ENG), Manufacturing and Supply Chain (MSC), Asset Performance Management (APM), Digital Grid Management (DGM) and Subsurface Science & Engineering (SSE).
The company serves customers across a wide range of asset-intensive industries like energy, bulk and specialty chemicals, engineering and construction, power and utilities, metals and mining, and pharmaceuticals.
In fiscal 2024, the company generated revenues of $1,127.5 million. Aspen Technology reports in three segments, namely License, Maintenance and Services and other.
Key Global Macro
The FOMC meeting, presser and their latest macro projections, out on Wednesday, is the main market event.
On Monday, Mainland China celebrates a Mid-Autumn Festival.
On Tuesday, U.S. Retail Sales for AUG come out. Expect +0.2% m/m, with a +1.0% m/m in the prior JULY data. Ex-auto should be +0.3% m/m, with +0.4% m/m in JULY.
On Wednesday, U.S. Housing Starts (Expect 1.25M with 1.38M as the prior JULY data) and building permits come out for AUG (Expect 1.41M, with 1.406M as the prior).
The FOMC rate decision lands. Chair Powell holds a presser.
FOMC economic projections also get updated. This is key! Currently, they show a 4.1% policy rate in the 1st year, 3.1% in the 2nd year, 2.9% in the 3rd year.
On Thursday, U.S. leading indicators for AUG come out. The prior was -0.6%.
Australia’s unemployment rate should remain steady at 4.2% in AUG.
The Bank of England (BoE) should keep its monetary policy rate at 5.0%.
Japan’s national CPI ex-fresh food for AUG should be +2.8% y/y, up from +2.7% y/y.
On Friday, there is a People’s Bank of China (PBoC) policy rate decision. 3.35% is the current mark.
There is the Bank of Japan (BoJ) policy rate decision. It is currently at 0.15%. There will be a BoJ presser.
U.K. retail sales for AUG come out. The prior reading was +0.5% m/m, with ex-fuel at +0.7% m/m.
Conclusion
On Sept. 11th, Zacks Research Director Sheraz Mian, offered up 4 key points, on the looming Q3-24 earnings season—
(1) Estimates for Q3-24 have come down since the start of the period.
The magnitude of estimate cuts are significantly bigger than what we had seen in the comparable periods of the year's first two quarters.
This negative shift in the revisions trend reverses the prior favorable development -- on this front in recent quarters.
(2) Zacks expects total S&P500 earnings to be up +3.9% from the same period last year on +4.6% higher revenues.
Estimates have steadily come down since the start of the period, with the current +3.9% growth pace down from +6.9% at the start of July.
(3) For the Technology sector, Q3-24 is expected to be the 5th quarter in a row of double-digit earnings growth (up +11.2%).
Excluding the Tech sector’s contribution?
Q3-24 earnings for the rest of the index would be up only +1.1%.
(4) Q3-24 earnings for the ‘Magnificent 7’ companies are expected to be up +17% from the same period last year on +13.5% higher revenues.
This would follow the +35.2% earnings growth on +14.7% higher revenues in Q2-24.
Excluding the ‘Mag 7’?
Q3-24 EPS growth for the rest of the index would be +3.6% (versus +3.9% otherwise).
The latest Q3 earnings data from Zacks’ Sheraz Mian confirms it: Tech is still where the EPS outperformance can be best found.
Enjoy an excellent week, trading or investing!
Warm Regards,
John Blank, PhD
Zacks Chief Equity Strategist and Economist