This Global Week Ahead is the last big week of the U.S. earnings season. 144 S&P 500 firms release results this week, followed by 38 the following week, and 18 the week after that. Then, the Q1 earnings releases fizzle out.
(1) The week’s key corporate names include Apple, Pfizer, Merck, Berkshire Hathaway, McDonald’s, Loews, Mastercard, MetLife, Kellogg and CBS.
(2) Of four main geopolitical risks to equities, two could see further constructive developments this week. These events would be centered upon NAFTA and North Korea. Iran nuclear deal recertification and the critical U.S./China tariff deadlines loom further out, roughly at the mid-month mark.
(3) The coming week holds two top-shelf U.S. macro events. The Fed’s latest policy decision comes out on Wednesday. April non-farm payroll data hits on Friday.
Reuter’s in London writes to us about the underlying situation in the global fixed income markets. Rates should continue to cause concern in equity markets this week too, as the key rates-related macro and a Fed policy decision hits the tape.
“As bond yields rise on expectations of higher interest rates, one thing that comes into focus is the equity risk premium (ERP) — the price paid to investors to compensate for the risk of investing in stocks rather than bonds.
It was this issue that was core to February’s global equity selloff — the sudden realization by investors: that government bonds could soon provide a viable safer alternative to equities.
Typically, first in line to be bruised by higher yields are consumer staples, which are known as “bond proxies” due to generous dividends and comfortable cash flows. So when U.S. 10-year yields rose above 3.0% last week, concerned clients called analysts asking what this meant for consumer staples stocks.
Indeed, higher yields have already caused an adjustment in the price-earnings ratios of firms such as Nestle and Unilever. And $100 million flowed out of consumer stocks and utilities — another bond-proxy sector — this week, EPFR figures showed.
But higher yields are not the only challenge: more salient might be the disruptive effect of Internet shopping, and companies’ waning pricing power in a more inflationary environment.”
It’s always good to read rate statements from London, for a global view—
Top Zacks #1 Rank (STRONG BUY) Stocks—
Texas Instruments TXN: This $101B market cap stock is leading the semiconductor season into greener pastures. The Value score of D is concerning, though.
Goldman Sachs GS: Yes, the $240 a share investment bank makes our top list this week. But the Growth score of F is concerning.
Caterpillar CAT: This $86B market cap stock looks like a lot better play than the former two stocks I mentioned this week. It has a B for Value and a B for Growth. With global growth stuttering, you might find a decent entry point here, in the coming weeks.
Let’s move onto data events.
Key Global Macro—
Wednesday’s FOMC statement (out at 2pm ET) is likely to be a maintenance affair. Don’t expect any policy action. There should also be a relatively straightforward wording update in the published notice.
On Friday, the latest monthly U.S. nonfarm payroll data comes out.
Was soft job growth during March (at +103K) a flash in the pan and possibly weather influenced, or was February’s +326K rise the aberration? Three out of the past four prints have registered job growth at a “one-handle.”
As important: Whether annual average hourly wage growth at +2.7% y/y changes, or climbs a little further.
On Monday, the fresh HICP monthly inflation rate in Germany comes out. No change in the yearly +1.5% y/y level is expected, with +0.4% m/m the prior reading.
For comparison purposes, the CPI in Germany (i.e. not Harmonized – H) is +1.6% y/y.
Mexico’s preliminary GDP growth rate comes out. The prior was +1.8%. The new reading could be +1.7% y/y.
The U.S. Chicago PMI comes out. The prior was 57.4.
On Tuesday, the U.S. manufacturing PMI comes out. The prior was 56.5.
In comparison, the more respected ISM U.S. manufacturing PMI also hits. It should go from 59.3 to 58. Near 60 is a +3.0% GDP annualized growth reading.
On Wednesday, the Caixin China manufacturing index is stuck at 51.0. We get a fresh reading. Don’t expect anything dramatic here.
Spain’s manufacturing PMI is at 54.8. Sweden’s is at 59.9. We get fresh readings.
The overall Eurozone manufacturing PMI is at 56.0. We get a fresh reading.
Interestingly, the CIPS/Markit U.K. construction PMI has been below 50 at 47, showing contraction. We get a fresh reading.
The Eurozone unemployment rate gets an update. It has been 8.5%.
The U.S. monthly ADP payroll data hits the tape. Prior month of March was 241K. The call is for April is 250K.
The Fed Funds rate should stay at 1.75%, after the FOMC wraps up. No presser happens this month.
On Thursday, the Eurozone HICP inflation rate gets updated. It has been tracking +1.0% y/y. This is the rate the ECB cares about, as a target, it wants +2.0% y/y here.
U.S. initial claims for unemployment this week should stay extremely low. 209K was last week’s reading. This is very low and sure to be causing hiring issues out there.
The U.S. non-manufacturing ISM should go from 58.8 to 58.5. That’s a solid and steady growth rate here.
On Friday, the Eurozone composite PMI hits the tape. 55.2 has been the reading.
U.S. non-farm payrolls should bounce back from the +103K in March to +200K in April.
The U.S. unemployment rate should go from 4.1% to 4.0%. A “3 handle” would be very big news indeed.
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