With the global week ahead, new COVID fears – fueled by a new South African variant – have torn through the risk markets.
Stock (and oil) traders are now leaving towards the end of the year.
Macro data released in the upcoming Global Week could provide the spark: one that will reignite risk-free market rates on US Treasuries despite this new COVID variant concern.
Something like a combination of:
- – European consumer price inflation above forecast. That’s out on Tuesday.
- – US non-farm job pressures rampant for November. That’s out on Friday.
What if both macro prints hit a strong tone?
That can provide fodder. For those who argue that the major US banks and the European Central Bank (ECB) need to hurry and wind down their exceptional bond buying incentives.
Next up are the five world market themes from Reuters, rearranged for stock traders.
(1) Renewed COVID fears of bringing back monetary policy pigeons?
COVID-19 fears and inflation data threaten policymakers who will have to decide the fate of two ECB bond purchase programs in just three weeks.
Tuesday November brings flash inflation in the eurozone. The pressure in October was 4.1% and many see it will stay above the ECB’s target of 2% for the next year. The German, Spanish and French CPI data will be released on Monday and Tuesday.
In the face of soaring inflation, ECB hawks warn against keeping monetary policy too loose for too long. A new federal government could meanwhile raise the minimum wage by around 25%.
Your message has resonated in angular markets. But the resurgent COVID is empowering the ECB pigeons as Europe battles a new surge and news of a new variant of the virus spreading from South Africa sounds the alarm.
The renewed economic uncertainty is causing investors to cut back their rate hike bets for the US, the euro area and the UK. The pigeons seem to have fresh ammunition to defend themselves against those who cry for an early end to the stimulus.
(2) US Nonfarm Payrolls for November Out Friday
With the Federal Reserve’s throttling underway, a strong November employment report could bolster the case for those who argue the $ 120 billion per month bond purchases should be faster.
While the Fed expects the settlement to be completed in mid-2022, robust economic growth and inflation more than double the flexible average target of 2% have sparked bets on faster settlement and earlier rate hikes.
Wage expectations were boosted by weekly data showing unemployment benefits claims were at their lowest since 1969. Employers are expected to have created 563,000 jobs, and any number above that could revive recent bond market restrictions and spell further spike for the dollar.
(3) OPEC + meets Wednesday, Thursday
The OPEC + oil producing group has been sticking to monthly production increases of 400,000 barrels per day (bpd) since August, opposing the demands of the consumer countries for more oil in order to bring prices down above 80 USD. Its meeting on December 1st and 2nd will take place immediately after the US decision to release 50 million barrels of oil from strategic reserves.
The prospect of additional oil has not faxed the oil markets; Goldman Sachs called it a “drop in the ocean”. However, an OPEC + source said that the oil spill by the United States and several other countries, while smaller than expected, would make their calculations difficult.
OPEC + production cuts will total 3.8 million bpd by the end of December, which is about 4% of global consumption. Sources say there is still no discussion of how to respond to the U.S. movement by halting production increases. But the group has warned the move could lead to an oil glut next year.
(4) Will there be signs of new credit growth in China?
The growth in new mortgage loans reinforces hope that Chinese lending may have bottomed out and that the economic burden of a feared real estate disaster will ease.
There are signs of a trend towards easing monetary policy. While policy rates have not changed, banks are being pressured into lending to property developers, authorities are trying to cut financing costs for small businesses, and are moving to strengthen the yuan’s stability.
Tuesday’s purchasing managers’ indices could show whether the tide is actually turning. But keep an eye on the Chinese port city of Dalian, where COVID is on the rise.
(5) Turkish Lira got out of hand?
Turkey has just (again) reminded us that prudent monetary policy is important – all the more so in emerging countries in times of high inflation.
President Tayyip Erdogan has reiterated his view that double-digit inflation can be tamed by cutting interest rates. The lira responded with a 15% drop on Tuesday, leaving it in uncharted territory.
The currency has partially rallied, but the central bank could make another rate cut at its December 16 meeting.
Monetary policy concerns are also widespread in Mexico. The peso took a hit after the president unexpectedly removed his candidate for central bank governor and nominated a deputy finance minister instead.
A firmer dollar, rising inflation, and a Fed in taper mode leave emerging market central banks little room for error.
(1 euro = 14,0991 lire)
Top Zacks # 1 (STRONG BUY) stocks
Check out the Zacks metrics associated with a top retailer in the US, China and Europe.
(1) Home Depot (HD Quick QuoteHD – Free report): That’s a share of $ 404 per share, which translates to a market cap of $ 430 billion. I see a Zacks Value score of F, a Zacks Growth score of D, and a Zacks Momentum score of B.
(2) JD.com (JD Quick QuoteJD – Free report): This is a share of $ 87 per share, which translates to a market cap of $ 119.7 billion. I see a Zacks Value Score of D, a Zacks Growth Score of C, and a Zacks Momentum Score of A.
(3) EssilorLuxottica (ESLOY): This is a share of $ 101 per share, which translates to a market cap of $ 93.4 billion. I see a Zacks Value Score of D, a Zacks Growth Score of D, and a Zacks Momentum Score of D.
None of the metrics look very good, do they? Just saying.
Both Zacks Value and Growth are consistently weak.
Key global macro
The main macro data event is the U.S. non-farm payroll data released on Friday.
On Monday, Kuroda gives a speech from the Bank of Japan (BoJ).
Fed Chairman Powell gives a speech.
The Governor of the Bank of Canada, Macklem, gives a speech.
DeBelle of the RBA gives a speech.
On Tuesday, we obtained the NBS PMI for manufacturing in mainland China. I see 53 is the consensus after a pressure of 52.4 in the previous reading. These PMIs from China never move.
The euro zone consumer price index (CPI) for November should be + 3.7% yoy.
The US Case / Shiller house price index should be + 20% yoy in September.
On Wednesday, the Markit Eurozone manufacturing PMI should be 58.6 in November, down from 58.6 in October.
US ADP hires for November should be strong at +525,000, after pressure of +571,000 in October.
On Thursday, the household unemployment rate in the euro area is expected to be 7.3% in October, after 7.4% in September.
On Friday, we’re getting US payroll data for November. + 531K was the tentative pressure for October.
The average hourly wage should increase by + 5.0% year-on-year.
The US household unemployment rate is likely to be 4.5% in November, compared to 4.6% in October.
This must be repeated:
Keep an eye on the two CPI printouts from Europe on Tuesday and the non-farm wage data for the US on Friday.
That’s it for me.
Have fun trading and investing.