For this Global Week Ahead, major macro & political events are quite varied by region.
- In Asia, China’s troubled markets take time out for the Lunar New Year holiday. There is a presidential election in the world’s 3rd-largest democracy, Indonesia.
- From the U.S., on Tuesday, Feb. 13th at 8:30 am ET, we get JAN consumer price inflation (CPI) numbers. It is the major market-moving event.
- From Europe, traders get to see key U.K. data, on unemployment, inflation and retail sales. There is also a Russian central bank meeting.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) U.S. CPI data for JAN lands on Tuesday, Feb. 13th, at 8:30 at ET.
For traders trying to bet on the timing of a first U.S. rate cut, life has not been made easy by an outperforming economy that could fuel a much-feared inflationary rebound.
January’s stellar jobs number was just one sign that the U.S. economy is exceeding expectations. Its unexpected strength has fueled caution at the Federal Reserve, which has poured cold water on expectations of a March rate cut, lifting Treasury yields and the dollar.
So, attention falls on Tuesday’s January inflation data. Any signs that price pressures are gaining momentum again could push rate cut bets further into the future.
Economists polled by Reuters expect a +0.2% rise in consumer prices on a monthly basis, after December’s +0.3% increase.
(2) A strong domestic economy assists the U.S. Dollar (USD) to 3-month highs.
An exceptional U.S. economy means an exceptional dollar.
As 2023 ended, market-watchers were certain the U.S. currency was headed one way this year — south — with traders expecting as many as six Fed rate cuts in 2024.
Now, powered by blockbuster jobs growth, a flourishing services sector, cooling inflation, a bottoming-out in lending conditions and a roaring stock market, just four rate cuts are fully priced in.
The dollar is at three-month highs, leaving competitor currencies — whose central banks are juggling slowing inflation and slowing growth — in the dust.
Not a single G10 currency is in positive territory against the dollar so far this year. Investors are still not holding a net bullish position on the dollar either, suggesting that, if the gap between the U.S. economy and the rest of the world keeps widening, the greenback could get a fresh tailwind.
(3) The latest U.K. inflation and household unemployment figures come out.
The Bank of England has held back from calling time on high rates. U.K. jobs data may see it fall further behind the more dovish U.S. Fed and European Central Bank.
Recent revisions to labor data from November showed that the U.K.’s unemployment rate was running lower than previously thought. This, according to researchers at Pantheon Macroeconomics, means that U.K. jobless figures out Feb. 13th could undershoot the BoE’s 4.3% estimate.
U.K. inflation figures on Feb. 14th could further complicate the monetary policy outlook. The BoE reckons inflation will return to its 2% target this year but has warned it could rise again in the third quarter.
Money markets have pushed out the timing of a first BoE rate cut to June from May. Pantheon sees U.K. rates at 4.5% by December from 5.25% now, but warns “the risks that initial cut comes later are rising.”
(4) A new president for Indonesia. That vote happens on Wednesday.
Indonesians head to the polls on Wednesday to elect the next leader of the world’s third-largest democracy as Joko Widodo gets ready to step down as president after a decade in power.
Three candidates are in the race to succeed Jokowi, as the popular president is known, and polls suggest Defense Minister Prabowo Subianto is the candidate to beat.
Jokowi, not allowed to seek re-election after two terms, leaves behind a legacy of policies that have helped the trillion-dollar G20 economy thrive from massive infrastructure projects and social welfare programs.
Yet, it’s not all smooth sailing. Rule changes allowing Jokowi’s son to run with Prabowo has sowed cabinet discontent and speculation that the widely-respected finance minister could quit.
Indonesian markets, which have been resilient in the face of global rate hikes, are rattled. The rupiah has slumped almost 2% so far this year.
(5) Russia’s central bank? It is likely to pass on hiking policy rates, even more.
It may be time to take a break for Russia’s central bank at its Feb. 16th meeting.
Policymakers have hiked rates by 850 bps to 16% since July to tackle inflation fanned by labor shortages, rouble weakness and high budget spending.
With President Vladimir Putin seeking re-election in March, just over two years after the invasion of Ukraine unleashed sanctions and severed Russia from the global financial fabric, the central bank faces the daunting task of zapping inflation without adding to borrowing costs for consumers and businesses.
- It is also at odds with the Kremlin over the benefit of extending capital controls that have supported the rouble since October and opposes a push for an extension, but will likely be overruled.
- Russian internet firm Yandex’s (YNDX) Dutch holding company, meanwhile, just announced a $5.2 billion cash and shares deal to hand over Yandex’s Russian business to domestic buyers.
Zacks #1 Rank (STRONG BUY) Stocks
Three Mag 7 tickers feature notably on Zacks #1 list this week.
(1) Amazon.com (AMZN – Free Report) : This is a $169 stock, and it captures a market cap of $1.8B now. Zacks puts it into our Internet-Commerce industry. I see a Zacks Value score of D, a Zacks’ Growth score of A, and Zacks Momentum score of A.
Amazon.com is one of the largest e-commerce providers, with sprawling operations in North America, now spreading across the globe.
Its online retail business revolves around the Prime program well-supported by the company’s massive distribution network. Further, its Whole Foods Market segment has helped Amazon establish a footprint in physical grocery supermarket space.
Amazon also enjoys a dominant position in the cloud-computing market, particularly in the Infrastructure as a Service (IaaS) space, thanks to Amazon Web Services (AWS), which is one of its high-margin-generating businesses.
Amazon has also become a household name with its Alexa-powered Echo devices. Artificial Intelligence (AI)-backed Alexa is helping the company sell products and services.
Revenues were $513.98 billion in 2022. The company reports revenue under three broad heads — North America, International and AWS, which generated 61.5%, 23% and 15.6% of total revenues, respectively.
Headquartered in Seattle, WA, Amazon targets three categories of customers: consumers, sellers and website developers. Consumers are offered variety, convenience and free delivery of goods displayed on the company’s websites.
The agreements with sellers are varied, enabling them to use the company’s websites to either sell their merchandise directly, or redirect customers to the sellers’ own branded websites. In case of the latter arrangement, Amazon earns a fee for the sales thus generated.
Competition comes in the form of traditional retailers, other online retailers, media companies, web portals, search engines, e-commerce companies and cloud computing service providers.
(2) Meta Platforms (META – Free Report) : This is a $470 stock, and it captures a market cap of $1.2B now. Zacks puts it into our Internet-Software industry. I see a Zacks Value score of D, a Zacks Growth score of A and Zacks Momentum score of A.
Meta Platforms is the world’s largest social media platform. The company’s portfolio offering evolved from a single Facebook app to multiple apps like photo and video sharing app Instagram and WhatsApp messaging app owing to acquisitions. Along with in-house developed Messenger, these apps now form Meta’s family of products used by almost 3.96 billion people on a monthly basis as of Sep 30th, 2023.
Its newly introduced metric, family daily active people (DAP) — which measures daily users of its family of products — was 3.14 billion, as of Sep 30.
Meta uses metrics like daily active users (DAUs) and monthly active users (MAUs) to measure Facebook’s user base. As of Sep 30, 2023, DAUs and MAUs were 2.085 billion and 3.049 billion, respectively.
Headquartered in Menlo Park, CA, Meta generated revenues worth $116.61 billion in 2022. Advertisement accounted for 97.5% of revenues. Marketers buy ads that can appear on multiple platforms including Meta, Instagram, Messenger and third-party applications and websites.
Meta, thanks to its huge user base, gained a significant market share in the advertising space, wherein it faces tough competition from Google, Twitter, Amazon and Snapchat-parent Snap.
Meta also faces significant competition from the likes of Apple (messaging), YouTube (advertising and video), Bytedance (social media) and Tencent (messaging and social media).
Meta’s core app enables people to connect, share, discover and communicate with one other on mobile devices and personal computers. User engagement on the core Meta platform is fostered by a News Feed that displays an algorithmically-ranked series of stories and advertisements customized for each user.
Instagram is a community for sharing photos, videos and messages, enabling people to discover interests that they care about. People can express themselves through photos, videos and private messaging via Instagram Feed and Stories.
Messenger helps people to connect with friends, family, groups and businesses across platforms and devices. WhatsApp is a simple, reliable and secure messaging application, used by people and businesses around the world to communicate in a private way.
Meta also offers virtual reality (VR) products through its Oculus division.
(3) Netflix (NFLX – Free Report) : This is a $558 stock, and it captures a market cap of $560B now. Zacks puts it into our Broadcast Radio and TV Industry. I see a Zacks Value score of F, a Zacks Growth score of B and Zacks Momentum score of D.
Netflix is considered a pioneer in the streaming space.
The company evolved from a small DVD-rental provider to a dominant streaming service provider, courtesy of its wide-ranging content portfolio and a fortified international footprint. At the end of the fourth quarter of 2023, the company had 260.28 million paid subscribers globally.
Netflix has been spending aggressively on building its portfolio of original shows. This is helping the company sustain its leading position despite the launch of new services like Disney+ and Apple TV+, as well as existing services like Amazon Prime Video.
Netflix streams movies, television shows and documentaries across a wide variety of genres and languages. Domestic and international subscribers can watch them on a host of internet-connected devices, including television sets, computers, and mobile devices.
The Los Gatos, CA-based company reported revenues of $33.72 billion in 2023.
Beginning fourth-quarter 2019, Netflix started declaring revenues and membership data by regions — the United States and Canada (UCAN); Europe, Middle East & Africa and (EMEA); Latin America (LATAM); and Asia Pacific (APAC).
- UCAN accounted for 44.5% of fourth-quarter 2023 revenues. At the end of the quarter, the company had 80.13 million paid subscribers in the region.
- EMEA accounted for 31.5% of fourth-quarter 2023 revenues. Netflix had 88.81 million paid subscribers in the region at the end of the quarter.
- LATAM contributed 13.1% of fourth-quarter 2023 revenues and had 46 million paid subscribers in the region at the end of the quarter.
- APAC accounted for 10.9% of fourth-quarter 2023 revenues. The company had 45.34 million paid subscribers in the region at the end of the quarter.
Key Global Macro
The major market-moving print is the JAN ‘24 U.S. CPI data, out Tuesday morning.
On Monday, Mainland China’s Foreign Direct Investment (FDI) comes out for JAN. The y/y measure is notably down -8%. Hence, the ‘un-investible’ concept.
On Tuesday, at 8:30 am ET, U.S. Consumer Price Inflation (CPI) data for JAN lands. The prior core CPI (3.9% y/y) and broad CPI (+3.4% y/y) were up +0.3% m/m last time. They might move up +0.2% m/m this time around. We shall see.
For a European comparison, we get the Swiss CPI data too. The CPI here should be up +1.5% y/y in JAN, after printing +1.7% y/y in DEC.
On Wednesday, Eurozone GDP for Q4-23 should be up a paltry +0.1% y/y.
On Thursday, U.S. retail sales come out for JAN. I see a prior +0.6% m/m reading for the broad measure. Ex-autos, it was up +0.4% m/m. That was a holiday DEC for you.
The Australian unemployment rate for JAN comes out. 4.0% is the consensus, after 3.9% showed in DEC.
U.K. GDP for Q4-23 comes out. The prior y/y reading was +0.3%.
On Friday, the U.S. Producer Price Inflation (PPI) measures comes out for JAN. The PPI broad measure was up +1.0% y/y in DEC. The core PPI was up +2.5% y/y in DEC.
U.K. retail sales for JAN come out. The prior DEC reading was -3.2% y/y.
U.S. housing starts should be 1.47M in JAN, after 1.46M printed in DEC.
The preliminary U of Michigan consumer sentiment index for FEB comes out. JAN was much better at 79.
Conclusion
To close macro matters out, we check recent earnings data —
Here are the 4 major points I drew from Zacks Research Director Sheraz Mian’s Feb. 7th S&P500 earnings update:
The Mag 7 earnings growth data, and the broader Tech sector reporting data, speak!
(1) Total Q4 earnings for the 285 S&P 500 members that have reported results are up +4.4% from the same period last year on +3.5% higher revenues.
81.1% are beating EPS estimates. 64.6% are beating revenue estimates.
(2) For the Tech sector, we now have Q4 results for 74.7% of the sector’s market capitalization in the index.
Total earnings for these Tech companies are up +21.9% from the same period last year on +6.4% higher revenues.
88.6% are beating EPS estimates. 72.7% are beating revenue estimates.
(3) The Tech sector is solely responsible for keeping the Q4 earnings growth pace in the positive territory.
Had it not been for the Tech sector’s strong growth, the +4.4% earnings growth for the companies that have reported already drops to a decline of -2.7%.
(4) For the Magnificent 7 companies, combining the actual results for the 6 companies that have come out with estimates for the one still-to-come company?
Total Q4 earnings are on track to be up +48.7% from the same period last year on +14.5% higher revenues.
Have an excellent trading week.
Warm Regards,
John Blank
Zacks Chief Equity Strategist and Economist
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