For Immediate Release
Chicago, IL – June 4, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Rio Tinto RIO, Blackrock BLK and Roku ROKU.
Here are highlights from Monday’s Analyst Blog:
Did the World Step Closer to Recession? Global Week Ahead
For the first Global Week Ahead of June, here are five Reuters world market themes—
I force ranked them for equities.
(1) What U.S. and Global Recession Gauges Tell Us
With Trump lobbing a new grenade — possible tariffs on Mexico — into the trade battle, the world may have stepped closer towards recession.
Bond markets shout that warning loudly: three-month U.S. yields are well above 10-year rates, the so-called “curve inversion” that’s foretold most 20th century U.S. recessions.
But could it be that bond markets are behaving like Chicken Little, warning the sky is falling? After all, years of money printing may have weakened bonds’ predictive power.
So let’s look at other gauges of a downturn…
First, unemployment. It rose before the past two recessions, but U.S. unemployment is now near 50-year lows.
Equities? May will be the first month in the red this year for global and U.S. stocks. But before the last two recessions, U.S shares turned down on a 12-month rolling basis — that hasn’t happened yet this time.
Looming recessions push up junk bond yields, but they’ve actually fallen in 2019.
On the downside, Korean exports, a bellwether of global growth, have fallen for five straight months. The Baltic Dry Freight index, a leading indicator for raw-material demand, is also down this year.
So signals are mixed.
Fed Vice Chair Richard Clarida has just signaled interest rates might be cut if growth looks at risk. But his view overall was that the U.S. economy was in a “very good place.”
(2) A European Central Bank (ECB) Meeting June 6th --- About TLTROs
It’s time for action again at the European Central Bank.
It will use its June 6 meeting to disclose the details for another round of ultra-cheap, multi-year TLTRO loans. Corporate lending in April expanded at its best rate this year, a positive sign. But with the growth outlook weak (think trade wars, Brexit, weak PMIs), generous TLTRO terms would be a sure-fire way to help.
But how generous is generous? There could be disappointment if they are not as low as previous rounds, especially with the German Bund yields, which anchor Eurozone borrowing costs, at record lows.
Evaporating inflation expectations, a U.S.-China trade war that could soon spill into Europe and worries about Italy all mean ECB chief Mario Draghi should stick to his trademark dovish tone.
The bank will also have new economic forecasts to chew over.
(3) G20 Finance Ministers Meet in Japan on the Weekend
The G20’s finance ministers and top central bankers brass will meet in Japan next weekend, and with the global trade war escalating rapidly again — Mexico has been dragged back into the thick of it — they’ll have plenty to talk about.
Spooked markets will hope blockbuster tete-a-tetes among U.S. President Donald Trump, President Xi Jinping, Russian President Vladimir Putin and Mexican leaders all make progress.
But the host’s top currency diplomat, Masatsugu Asakawa, has already tried to manage expectations, saying the post-meeting communique won’t include language saying members will fight protectionism, and the Bank of Japan governor has been sounding cautious.
That’s one reason why the outlook for the global economy is now looking so grim. Bond markets are convinced a global recession is coming.
Australia could become the second advanced economy to start cutting interest rates again next week — to a record low of 1.25% — and some economists are now penciling in as many as five Fed cuts.
(4) Two-Day Fed Conference in Chicago
The U.S. Federal Reserve holds a two-day conference in Chicago, where central bank insiders will huddle with private-sector economists to debate how the Fed might tweak things to better meet its dual mandate of stable inflation and full employment.
Fed brains have been flummoxed by the apparent breakdown in the relationship between employment and prices and by their inability to coax inflation up to their 2% target for any length of time. Since establishing that target in 2011, the Fed has managed to meet it only a handful of times, and with the trade war ratcheting up it is again drifting out of reach.
When unemployment was last this low, half a century ago, both headline inflation and core inflation, stripping out food and energy costs, were far higher than they are today.
It’s far from certain what will emerge from Chair Jerome Powell’s framework review initiative, but it is clear that Fed officials are fretful of losing the confidence of consumers and markets in their ability to steer inflation.
(5) Italy’s Debt Situation Rears Up, After European Parliamentary Elections
“There are those who talk and those who act,” Italian Deputy Prime Minister Matteo Salvini has been quoted as saying. During his one year in office, Salvini has certainly shown he can talk. Now markets may be find out if he’s also a man of action.
Emboldened by European parliamentary elections, in which his far-right party got a third of the votes, Salvini is threatening to tear up EU fiscal rules. He argues the result gives his party a mandate to push through tax cuts and fight EU budget rules. Doing that would end the budget truce with the European Commission after less than six months.
The Rome-Brussels standoff will escalate after June 5 if the Commission decides to start disciplinary steps against Italy for failing to rein in debt. It could impose fines as high as 8.7 billion euros.
We may also learn soon if Salvini intends to dissolve his coalition with the 5-Star Movement and call snap elections, something he has so far ruled out.
All that has put markets on high alert. Shares in Italian banks have fallen to their lowest since September 2016. Italian bonds sold off after the election and yield spreads over German yields have widened, approaching last November’s 300 bps.
The risk is that worsening debt metrics trigger credit rating downgrades in coming months. That would raise bond yields further, hurting Italian banks. If Salvini — and the Commission — do act, buckle up for more turbulence.
Top Zacks #1 Rank (STRONG BUY) Stocks—
(1) Rio Tinto: This is a $79B market cap Australian iron ore miner. Shares price at $58 or so. The Zacks Value Score is A and the Growth Score is B. Shares are flat the last month.
Will the Vale struggle continue to help this stock? What about China?
(2) Blackrock: This is a $65B market cap Financial-Investment Management outfit based in NYC. The Zacks VGM score is F. In early May, shares were $480. In early June, they are $420.
Can Financial Sector stocks like this make any headway in this market, with super low interest rates, and struggling stocks?
(3) Roku: This is a now $10B market cap video streaming player. The Zacks Value Score is F and the Growth Score is F. In early May, shares were near $60. Now? $90.
To say this supposed exciting TV story is priced in? That is an understatement!
Key Global Macro—
Hitting on Thursday morning in the USA, the ECB policy decision and Draghi presser will be --far and away-- the biggest pending development in European markets. And it has strong potential implications for world markets.
In the USA, the Fed’s Chicago conference should be watched. The non-farm payroll report on Friday is always a key U.S. and global markets driver.
The global issue of note this week in Latin America? It has to be the latest tariffs on Mexico to deal with Central American immigration problems.
On Monday, India’s manufacturing PMI came in at 52.7, beating consensus at 52.0.
Germany’s pulse comes out later today. That country’s manufacturing PMI is at 44.3.
The Eurozone manufacturing PMI is at 47.7. We get a fresh reading here too.
The closely watched U.S ISM PMI for manufacturing comes out. It is forecast to be 53.0.
On Tuesday, the Fed’s Powell speaks in Chicago.
The Reserve Bank of Australia (RBA) may cut its overnight rate from 1.5% to 1.25% today.
The Eurozone HICP is at +1.3% y/y. We get fresh data.
On Wednesday, Japan’s composite PMI comes out. It has been 50.8.
Eurozone retails sales data get a refresh. These are tracking +1.9% y/y.
The Fed issues its Beige Book.
On Thursday, the Governing Council of the ECB holds its monetary policy meeting. The deposit rate should remain -0.4% and the main refi rate at 0.0%.
Japan’s Finance Minister Aso and the BoJ’s Head Kuroda speak in Tokyo.
On Friday, U.S. non-farm payroll should be +155K in May, down from 263K in April.
The U.S. unemployment rate should go from 3.6% to 2.7%.
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