For the Global Week Ahead, let’s visit Reuter’s five top world market themes.
These are the ones likely to dominate the thinking of investors and traders in the coming week. It’s been a great year for stocks outside the U.S. We are about to move into a New Year with fresh share price momentum -- everywhere.
(1) The Bank of Japan (BoJ) Will Be in Midweek Headlines
The Bank of Japan holds the last of this year’s major central bank meetings.
Japan’s economy is now into its best period of expansion this century, the labor market continues to improve, and bank lending is booming. Yet the BOJ’s stimulus remains pretty much at full throttle, having already ballooned its balance sheet to the same size as Japan’s GDP.
Keeping the yen from appreciating and thus disturbing the cyclical tailwinds of growth seems to have become a major reason why the BOJ is a laggard on policy ‘normalization.’
Some BOJ policymakers have been dropping subtle hints to prepare markets for an eventual exit from its policy -- one that keeps short-term rates negative and pegs the 10-year yield to zero percent -- but investors expect little guidance around that exit plan at next week’s meeting.
The first changes may come via a small rise in the 10-year yield target, they suspect, but even the odds of that are low so long as wage growth is subdued and inflation remains well below the BOJ’s 2 percent target.
(2) Fresh U.S. Housing Data – Pay Attention to the Details
Fresh U.S. figures on existing home sales and housing starts could point to a continued deceleration going into 2018.
On a 12-month percentage change, dating back to 2000, both data series reveal how the housing market is softening.
The Federal Reserve’s interest-rate cycle has been a major factor -- in particular, short-term mortgages, where interest rates on floating-rate home loans have risen the most, making life harder for some would-be buyers.
One of the conundrums though is that the White House wants to juice up the economy with tax cuts while the Federal Reserve wants to keeping raising interest rates so they get back to more normal levels.
(3) A Snap Election in the Catalan Province of Spain
On Thursday, a snap election takes places in Catalonia. The Spanish government hopes the vote will put an end to the wealthy region’s independence bid.
One recent poll suggested pro-independence parties may fail to retain an absolute majority of seats in the Catalan parliament, with pro-unity parties poised to increase their vote share.
Failure to win a majority in the regional parliament would be a blow for Catalan separatists who have billed the Dec. 21st election as a de facto plebiscite on Madrid’s decision to impose direct rule in October following an independence referendum. Spanish bonds and stocks markets, both unnerved by the political crisis, have recovered ground.
Any signs that the election will bring calm to the Eurozone’s fourth biggest economy should cheer investors -- and give them plenty of time focus on elections likely to be held in Italy early next year.
(4) Pay Attention to South Africa’s Presidential Election
On Sunday, South Africa’s ruling African National Congress (ANC) party is expected to anoint its next leader.
But whoever wins, the chances of the party splitting in two have grown.
The bruising battle to choose the successor to President Jacob Zuma between business-friendly Deputy President Cyril Ramaphosa and Nkosazana Dlamini-Zuma, a former cabinet minister and ex-wife of President Jacob Zuma, is too close to call.
The rand has performed well in recent weeks on expectations that Ramaphosa will clinch the victory. But the complexity of the leadership contest means the outcome is far from certain.
So investors who had been hoping for political stability and a chance for the country to enact some much-needed structural reforms could be disappointed.
(5) Will This Be the Best Year for Global Stocks Since 2013, or 2009?
There’s just one full trading week left to the end of the year.
Perhaps one of the few remaining issues to decide markets-wise is this: Was this the best in year in global stocks since 2013 or 2009?
Right now 2017 is vying with 2013, with gains just above +20% year-to-date seen in both. The crash recovery year of 2009 clocked up more than +30% and stocks are well shy of that.
Top Zacks #1 Rank (STRONG BUY) Stocks—
Asahi Kasei AHKSY: This is a big $18 billion in market cap diversified Japanese chemical maker. The stock is trading at about $26 a share after a strong run.
The global chemical markets are a key bellwether to watch, and the strong rank here is good news for global growth centered in Asia.
NVR NVR: This is a $13 billion in market cap building products-home builder. U.S. housing figures out this week can move Zacks #1 Rank stocks like this.
NVR, Inc. operates in two business segments: homebuilding and mortgage banking. Again, this is a stock already on a big momentum roll this year, in a hot industry.
Wynn Resorts WYNN: This $16 billion market cap casino stock keeps going up. And the Zacks #1 Rank says the business is getting more and more profitable.
Will final tax bill passage keep these types of gaming stocks on a roll? I bet it does.
Key Global Macro—
In the U.S., we likely see the final passage of the tax bill, during the week.
Argentina’s GDP growth rate, out on Wednesday, may be an eye catcher.
Wednesday’s Riksbank decision won’t alter the policy repo rate (-0.5%) but guidance on timing the first rate hike since 2011 will be carefully scrutinized.
At the same time, the Bank of Japan is likely to maintain mostly unchanged stimulus measures, but again, there are negative rates in play. Any change to them would be big news.
On Monday, the unemployment rate in Hong Kong is +3.0%
The Eurozone CPI was +1.4% y/y. We get a fresh reading.
Brazil’s proxy GDP comes out. The forecast is for +2.4% y/y.
On Tuesday, the composite interest rate for Hong Kong gets re-set. It is 0.5%, which sounds low, given the Fed rate hike and the low unemployment rate there.
U.S. building permits come out. The prior was 1.316M.
On Wednesday, the Bank of Japan (BoJ) issues a policy statement and Governor Kuroda holds a press conference. The overnight rate in Japan is now at -0.1%.
Sweden’s Riksbank will re-issue guidance on its negative interest rate, now set at -0.5%. That negative rate decision is what is interesting here. No change is expected.
Argentina is in a bit of a turnaround. Its prior GDP growth rate was +2.7% y/y, and the forecast is for that to rise to +4.3% y/y.
On Thursday, U.S. weekly initial claims for unemployment come out. The last weekly reading was a super low 225K. This one should be low too, with Xmas seasonal hiring picking up any slack here.
Mexico’s pesky high consumer inflation rate is revisited. The prior was +6.67% y/y, and the forecast is for +6.64% y/y.
On Friday, the University of Michigan sentiment index gets a fresh visit. The prior was 96.8.
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