This Global Week Ahead for stocks is starting off on the wrong foot -- Facebook FB shares fell -4% in pre-market trading, outpacing a wider drop across tech stocks. As FANG stocks go down, so go major stock indexes these days.
Claims surfaced over last weekend: A data analytics firm hired by the Trump presidential campaign harvested data on ~50 million Facebook users without consent.
A former Cambridge Analytica employee showed documents to the New York Times and the U.K.’s The Observer. The news outlets said it detailed a program that used data from a survey run on Facebook without users’ permission.
Shortly, Mark Zuckerberg, CEO of Facebook, will be on his way to testify to a U.K. House of Commons committee charged with the investigation.
Now, let’s look at the rest of this Global Week Ahead using the following five Reuters in London big themes. These are the ones likely to dominate thinking of investors and traders.
I ranked them in order of importance, from an equity market perspective. I also updated where appropriate.
(1) Powell Fed Rate Hike of 25 Basis Points
On Tuesday and Wednesday, the U.S. Fed’s first meeting with new head Jerome Powell at the helm takes place. An interest rate rise — this year’s first — is seen as a done deal.
Against the backdrop of brewing inflationary pressures, mortgage rates and Treasury yields have been rising. And risk assets including equities and junk debt prices have been exhibiting signs of stress.
World investors will be paying close attention to the wording of the Fed statement for clues on whether Powell & Co. think conditions are now strong enough to hike rates beyond the three the financial markets have been forecasting.
Oh, and what they think about the risk of a global trade war.
(2) First Deal Between the U.K. and Eurozone Leaders on Brexit
On Monday, U.K. officials announced they believed a Brexit transition deal had been agreed between Prime Minister Theresa May’s government and the European Union. Bloomberg News reported.
It is now awaiting a sign-off from U.K. Brexit Secretary David Davis and chief EU negotiator Michel Barnier, according to two people familiar with the situation.
In turn, this week will be a big one for sterling traders. The pound has made a solid recovery — against the dollar at least — over the last year. “Long” positions on cable are only fractionally below a three-year high.
If there was no sign of a deal — and a “hard” Brexit suddenly became the base case again — the U.K. currency would have almost certainly gone skidding again.
That doesn’t appear to be the case on Monday.
On Thursday, there will also be a Bank of England meeting.
A transition deal might give it cover to strike a more confident tone on further rate hikes this year.
(3) Bearish Bets Grow on European Equities
Hedge funds have been ramping up their bets against European equities in recent weeks. “Short” demand for European equities is now up 18 percent year-to-date, and the current total short position is $188 billion, just below a post-euro crisis high of $193 billion hit a month ago.
With a strong economic backdrop and more attractive valuations than U.S. equities, what’s pushing investors to short the European market?
The strong euro is one reason why hedge funds think the region’s corporate earnings won’t live up to share prices. And political risk — the main reason why short positions increased last year — reared has its head again with the complicated outcome of Italian elections this month.
But another reason may be strategic: Analysts say it has been cheaper to “short” a basket of big European names than those from across the pond. European stocks also have a higher “beta,” or correlation, than U.S. stocks to the broader market when it is going down.
So a bet against Europe may simply be the most efficient way to bet against markets overall.
(4) Moody’s Set to Rate South African Debt – Russia Comes Under Stress
Emerging market investors’ love for South Africa and Russia will be severely tested, with Moody’s set to deliver a long-awaited verdict on South Africa’s last remaining investment grade credit rating by March 23, and Russia is facing Western condemnation over a nerve agent attack on British soil just as Vladimir Putin limbers up for another presidential election win.
South African assets have rallied hard this year on a turnaround ticket, with new President Cyril Ramaphosa pledging to fight corruption, implement much-need structural reforms and kickstart growth. The country’s bonds are currently international investors’ top “overweight” in portfolios linked to JPMorgan’s GBI-Emerging Markets index so the rating call could be tense.
Russian assets have come under scrutiny, amid the potential for more biting and globally coordinated sanctions on Moscow if the spy poisoning case escalates.
So far, bond investors appear largely unperturbed. There was strong interest for a new Russian Eurobond which landed on big funds’ desks just as Britain and the United States were expelling dozens of Russian diplomats.
(5) Fresh Central Bank Head in New Zealand
The March 22 meeting at the Reserve Bank of New Zealand should be eventful, but not for the normal reasons, for almost no one expects a change in rates. But the RBNZ is having a change of guard. Adrian Orr takes over as governor on March 27 from Grant Spencer.
A new Policy Target Agreement (PTA), which is to be signed between the incoming governor and the country’s finance minister, must also be released before Orr takes over. It could allude to the employment objective that the government wants to include in the RBNZ mandate and is seeking parliamentary approval for.
As for interest rates, markets expect no change until mid-2019.
Economic conditions – growth seen slightly above last year’s, below-target inflation, a stable currency and rising share prices – validate those expectations.
New governor Orr has worked for the RBNZ before and is considered a continuity candidate, analysts warn against taking a change of guard for granted though. They cite the example of Philip Lowe at the Reserve Bank of Australia, who surprised markets with his focus on financial stability.
Top Zacks #1 Rank (STRONG BUY) Stocks—
(A) Boeing BA: This $194B in market cap aerospace giant’s stock is in the crosshairs. This company is a very global trade-related franchise. So trade war worries play out here. You will see CNBC focus its headlines here.
As to shorting this stock, the Value Score of D doesn’t help much in that regard. But the Growth Score of A, moving lower on trade worries, is what to what out for. That would give the bears more traction.
(B) General Motors GM: Here’s another $53B in market cap trade-related stock to watch. It is a Zacks Rank of A in Value and an A in Growth.
So there are obvious positive reasons — that dominate trade war worries — to buy this stock. Don’t get too narrowly focused on one transient theme this week.
(C) Lyondell Basel Industries LYB: This is a big $42B in market cap German diversified chemical stock. The Zacks VGM score is B.
Chemicals are a very global growth-related industry. It is worth watching how this stock performs, in that regard. The Chemical group as a whole moves together.
Key Global Macro—
On Tuesday, the Fed’s 2-day March monetary policy meeting begins, and the expectation is for a 25 basis point rate hike.
The Bank of England and Brazil will follow with monetary policy decisions of their own.
On Monday, the proxy GDP in Brazil should get to +2.8% y/y from +2.14% y/y.
In turn, Chile GPD should get to +2.9% y/y from +2.2% y/y.
On Tuesday, the unemployment rate in Finland is 8.8%.
The German ZEW indexes come out. The priors are 92.3 on Current Conditions, 29.3 on Economic Sentiment, and 17.8 on Economic Sentiment.
The unemployment rate in Argentina should go from 8.3% to 7.4%, less than Finland. A great turnaround is going on here.
On Wednesday, Brazil’s monetary policy rate (the SELIC) should be cut from 6.75% to 6.5%. The taming of inflation in this country is what is producing the ability to cut rates now.
The ILO unemployment rate in the U.K. is 4.4%. We get a fresh reading.
The unemployment rate in Russia, with newly elected Putin, is 5.2%. We get a fresh reading.
On Thursday, the Central Bank of Taiwan (CBC) should leave its benchmark interest rate at 1.38%.
The unemployment rate in Australia is 5.5% and is not expected to change.
The important German IFO indexes come out. Business Climate should go from 115.4 to115.8, Current Conditions from 126.3 to something new. Expectations should go from 105.4 to something new.
The Eurozone manufacturing PMI is 58.6 and services are 56.2. We get fresh readings.
U.S. initial claims are super low at 226K.
On Friday, Russia’s key monetary rate gets set. It is high at 7.5%.
Mexico’s proxy GDP should go from 1.14% y/y to 1.9% y/y.
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