Summary: The US equity markets remain on the verge of a bear market after a brief foray into that territory on Friday. We are entering the last week for major Q1 earnings with retailers on watch again, and it is also the week before the Fed starts to tighten its balance sheet from June 1. PMI releases will be keenly watched for any recession risks while a global food crisis also remains a key focus especially as the World Economic Forum kicks off.
Will more pain come from consumer spending stocks reporting this week? Costco, Best Buy and Dollar General report earnings this week. Will their stocks freefall like Walmart and Target did last week, amid weaker guidance levels for the year ahead? $550 billion in market value was wiped from consumer stocks over the last five days, while experiential economy/reopening stocks like United Airlines and American Airlines finished virtually steady. That reflects what’s going on at the moment and our preference for reopening stocks over household goods stocks. Also on watch will be earnings from pandemic era favourites such as Zoom.
Fed minutes and US core PCE inflation. As we head into the final week before the Federal Reserve begins to tighten its balance sheet from June 1, focus will be entirely on the Fed minutes due Wednesday to again looks for any hints of possible 75bps rate hikes in the coming months. While the base case stays at a series of 50bps rate hikes to follow, investors are also increasingly parsing Fed talk to look for signs of stagflation or economic slowdown and that really is driving the market sentiment for now. Fed minutes will especially be key for the FX markets, and focus will be on EUR and JPY. April core PCE inflation data will also be key to parse the strength of the US consumer through the high inflation periods especially after the shock retailer earnings last week.
Flash global and Eurozone PMIs. With inflation concerns being increasingly priced in by the markets, focus is now shifting to the possibility and extent of economic slowdown, and Eurozone likely faces the biggest threat in that regard. Flash Eurozone PMIs will be on watch to gauge the extent of damage to the economy.
China’s economic calendar is light this week with only April industrial profits on Friday. Investors have already discounted extremely weak economic activities in April and are now looking beyond the month of April and focusing on if economic activities have recovered in May. Korea’s May 1-20 Exports to China coming at +6.8% YoY, bouncing back from the +1.8% print in April. Being an important supplier of intermediate good to China, this probably offers a moderately positive glimpse of the Chinese manufacturing industries for May.
Agricultural sector & stocks front and centre. With only 10 weeks of global wheat supplies left, agricultural stocks are once again in the spotlight, fuelled by record price rises in wheat, corn and soybeans and grain, pushing ag stocks to the best performing posts for the month, and year. Local grain producers and sellers like Elders (ELD) and Graincorp (GNC) are up over 10% YTD and are hitting new record levels, with Elders for example saying Australian crop conditions will bolster, and cattle and sheep prices will remain high, which will push its earnings 30% higher than last years record. Fertilizer stocks like Nutrien (NTR) and Mosaic (MOS) are also riding high, up over 20% this year.
Davos meeting. Global leaders gather in Davos, Switzerland as the World Economic Forum holds its in-person annual meeting after two years. The theme of the summit is “History at a Turning Point: Government Policies and Business Strategies”, and it will focus on key topics such as pandemic recovery, tackling climate change, the future for work, accelerating stakeholder capitalism, and harnessing new technologies – most of which are key inputs for our equity theme baskets.
Alibaba (09988) reports March 2022 quarterly results on Thursday. Consensus estimates are calling for a 7% increase in revenues and a 29% fall in earnings YoY. Analysts are concerned that the Company may report a decline in customer management revenues (ads & commissions) and slower growth in cloud revenues. Tencent’s disappointing results in its cloud business and glim assessment of the prospect of cloud services in China have intensified investors’ worries about Alibaba’s cloud service revenues.
RBNZ to hike. The Reserve Bank of New Zealand is pushing for aggressive tightening amid the high inflation concerns as energy prices rise. They aim to raise rates to above neutral by the end of the year, and risk of jumbo rate hikes is looming large.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
