Shiller price index

Reflections from Sintra Portugal: World Week Ahead – June 27, 2022

In the coming week, a manufacturing PMI in mainland China and the Fed’s favorite consumer price inflation index (CPI) in the United States will be the highlights of the macro data.

On Thursday, the main indicator for factory activity in China in June and data for the Personal Consumption Expenditure (PCE) Price Index in the United States in May – the Fed’s preferred inflation indicator – are went out.

Fears continue to grow over the risks of a global recession, as we approach the middle of 2022. So macro data and central bank chat are coming under closer scrutiny from traders in scholarship this week.

As for bonds, Russia could be confirmed in default – on external sovereign bonds – for the first time in a century.

To focus on these global macroeconomic issues, the European Central Bank (ECB) will host a three-day Jackson Hole-style forum in Sintra, Portugal.

From Google I learned that:

“Sintra is a seaside resort located at the foot of the Sintra Mountains in Portugal, near the capital, Lisbon. A longtime royal sanctuary, its forested grounds are dotted with pastel-colored villas and palaces.

“The Moorish and Manueline style Sintra National Palace is notable for its dramatic twin chimneys and elaborate tilework. Pena National Palace, perched in the 19th century, is known for its whimsical design and panoramic views.

That looks nice !

A sultry mid-summer encounter for the world’s central bankers.

This is followed by Reuters’ five global market themes, rearranged for stock traders.

(1) The first semester (1H) of 2022 is over

Six months littered with rate hikes, market turmoil and a war that fueled runaway inflation give way to another half year with… more of the same.

Still, the second half of the year could contain turning points, especially a spike in inflation, which could be closer than expected as economic growth slows and oil prices fall.

Could recession signals temper the central bank’s warmongering? Markets expect US rates to double by the end of the year from 3.25% to 3.5%, and see Eurozone rates rise from -0.5% to 0.75%.

Still, stock markets, firmly in bearish territory, could get some respite. History shows that stocks typically fall as inflation approaches peak and then recover, notes Goldman Sachs.

But it also depends on the company’s profits. Double-digit earnings growth in the United States and Europe is still expected for 2022.

Finally, look at Japan and Turkey, central bank dove in a forest of hawks. The latter risks triggering a serious crisis.

(2) A lot of new US macro data is coming

Fed chief Powell said the central bank was not trying to cause a recession, but was committed to containing price pressures even at the risk of a downturn.

A series of upcoming data should show how the US economy is reacting to an aggressive Fed, which has tightened 150 basis points this year, including this month’s 75 basis point move.

Highlights include Tuesday’s June consumer confidence index, which analysts polled by Reuters expect to fall to 100 from 106.4 in May.

Monday’s pending home sales and Tuesday’s Case-Shiller home price index are expected to show how much higher mortgage rates are biting, while May’s personal consumption expenditure price index – an indicator inflation rate monitored by the Fed – is expected on Thursday.

(3) Macro data from mainland China will also arrive

Chinese factory activity data for June could offer a glimmer of hope to financial markets.

Zero COVID lockdowns and a slowing global economy have taken the wind out of commodities, pushing the price of copper, a growth indicator, down nearly 10% in two weeks in Shanghai.

Iron ore is also on the skids, and red dust miners in Australia gave up gains for the year, dragging down the benchmark stock index there.

This sadness might take a bit of drilling. But the lockdowns have eased and if the data shows that economic momentum is pushing output into growth territory, that would be a welcome signal for the economy and for those who see Chinese stocks as a safe haven from stagflation fears that are looming. take over the West.

(4) Tensions with Russia continue to rise

Four months after the start of the war, tensions between Moscow and the West are rising again. EU leaders have formally accepted Ukraine as a candidate to join the bloc, a bold geopolitical move sparked by Russia’s invasion of Ukraine.

Meanwhile, Russian gas flows to Europe via Ukraine and the Nord Stream 1 pipeline have plummeted, following the invasion and Europe’s moves to impose sanctions on Moscow. A dozen EU countries are affected and Germany has triggered the “alert stage” of its emergency gas plan.

The standoff over the Russian enclave of Kaliningrad, triggering fresh warnings from Moscow to Baltic EU member states, adds to concerns.

And Russia could slide into sovereign default territory when the grace period for paying interest on its international bonds expires, heralding perhaps the country’s biggest external default in more than a century.

(5) European Central Bank (ECB) visits Sintra, Portugal for 3 days

The Fed has Jackson Hole, but the ECB has Sintra, its own central banking forum in the foothills of Portugal’s Sintra Mountains.

The three-day shindig, starting on Monday, will be particularly interesting, given the biggest surge in inflation in decades and concerns of an impending global economic recession.

So listen even more carefully than usual to what ECB Chief Christine Lagarde, Fed Chairman Jerome Powell and Bank of England Governor Andrew Bailey are saying at the forum. ECB comments will also be consulted for any insight into a planned anti-fragmentation tool.

Elsewhere, Friday, July 1 will bring the latest eurozone inflation readings, which in turn could determine whether the ECB will proceed with larger interest rate hikes after a reported quarter-point move. for July.

Top Zacks #1 Ranking (STRONG BUY) Stocks

I’ve rounded up three stocks from very different industries this week. The common denominator is that they are all solid Zacks Growth stocks.

(1) Summary (SNPS free report): It is a $309 computer software stock, representing a market capitalization of $46 billion. I see a Zacks Value score of F, a Zacks Growth score of B, and a Zacks Momentum score of F.

(2) Kroger (KR free report): It is a $48 retail grocery chain stock, representing a market capitalization of $34 billion. I see a Zacks Value score of B, a Zacks Growth score of A, and a Zacks Momentum score of A.

(3) WW Grainger (GWW free report): This is a $446 per share of Industrial Services. I see a Zacks Value score of D, a Zacks Growth score of B, and a Zacks Momentum score of B.

The Kroger grocer’s stock is the only one that is not expensive.

Hmmm…

Key global macro

Thursday will be the big day for macro prints, both for the US and China. But Friday’s Eurozone HICP print is also worth noting.

On Monday, May US Durable Goods Orders are released. +0.6% is the consensus, after printing +0.5% the previous month.

U.S. pending home sales for May are expected to fall -2.0%, after falling -3.9% the previous month.

Tuesdaythe US Case-Shiller home price index for April is expected to be similar to the previous reading at +21.2%y/y.

Wednesdayunderlying personal consumption expenditure (PCE) in the United States in the first quarter should be up by +5.0% q/q.

US PCE prices also come out. The prior reading is +7.0%.

Thursday, China’s NMB manufacturing PMI for June is expected to be 48.6, down from 49.6 the previous month. Still no sign of expansion there, after the COVID shutdowns.

The eurozone unemployment rate is expected to remain stable at 6.8% in May.

The core PCE price index for May in the United States reached. I see +4.9% is consensus, same as previous reading.

Friday, the Australian RBA commodity price index for June is released. The previous reading was warm at +30.4%y/y.

Eurozone headline HICP consumer price inflation for June is forecast at +7.8%y/y, down slightly from +8.1%y/y in the prior month.

It’s Canada Day. This day commemorates the anniversary of the Constitution Act, which united three territories into one nation, Canada, in 1867.

Conclusion

On June 22, we received thoughts from Zacks Director of Research, Sheraz Mian, on a critical topic for stock owners: “Will earnings estimates finally come down?”

“Some of the uncertainty in the market right now has to do with how earnings estimates are likely to move in an aggressive Fed tightening cycle.

“The market has an idea of ​​what should happen to earnings estimates, but it doesn’t see much of that right now.

“The natural order of things is that rising interest rates take over aggregate demand, causing the economy to slow down.

“Companies are beginning to experience this new reality on the ground in their normal operations, which shows up in their quarterly numbers and management guidance.

“We have already started to see some of this:

  • For example, recent comments from a home builder Lenar (LEN Free report) on the difficulty of providing its outlook for the next quarter in a rapidly changing interest rate environment shows us. This interest rate sensitive part of the economy has already started to react to Fed tightening.
  • We also heard recently from Microsoft (MSFT Free report) and Selling power (RCMP Free report) the negative impact that a strong US dollar is having on their current quarter results.
  • Earlier we saw a host of retailers including Target (TGT Free report) , Walmart (WMT Free report) and others come out with quarterly numbers. These were weighed down by persistent macro factors such as inflation, supply chain issues and moderating/changing consumer spending trends.

“It’s far too early to tell how many estimates will eventually drop.”

That’s all for me.

Good week of trading.

Best wishes,

white jeans
Zacks Chief Equity Strategist and Economist