Over the coming global week, the resilience of US large-cap stock index values and the Russian ruble’s exchange value against the euro and US dollar could be tested.
As the second quarter kicks off, the big macroeconomic question is when the surge in global consumer price inflation rates will finally peak, according to Reuters.
The end of a Reserve Bank of Australia meeting on Tuesday and the release of the latest Federal Reserve minutes on Wednesday will provide some insight into the thinking of rate setters.
This is followed by the final five Reuters Global Market Themes, rearranged for stock traders:
(1) Can the S&P500 and the Nasdaq continue to rebound?
Two weeks ago, Wall Street’s S&P 500 and MSCI’s main global stock index were both down -14% for the year and the Nasdaq was officially in -20% “bear” market territory.
Now? Although the war in Ukraine is raging and interest rates are on the rise, the S&P 500 is back to -5% from its all-time high, the MSCI World has recovered half of its decline and the Nasdaq is in drop of a more manageable -8. %.
Analysts are hoping that as the dust settles, corporate earnings will stay healthy and the dreaded “stagflation” scenario will be averted. TINA, or There Is No Alternative, is still alive and well… it seems.
The next earnings season is approaching, but if the Russian-Ukrainian crisis leads to a new Iron Curtain, it could be harder for stocks to defy gravity.
(2) Is the Russian ruble really rebounding?
The ruble has rallied remarkably from record lows in the days following Russia’s February 24 invasion of Ukraine. In onshore and offshore markets, where Western institutions trade with unauthorized Russian entities, the ruble has almost returned to where it was before the invasion.
The rise is partly due to capital controls which have suppressed the sale of rubles and artificially inflated the currency. But there is also a genuine improvement in Russia’s balance of payments as imports plummet and soaring energy prices boost export earnings.
President Vladimir Putin’s demand for ruble payments for gas, and whether European buyers agree, could be the next test of whether demand for the currency is real or artificial.
(3) Is this the end of the era of negative yielding debt?
As the U.S. yield curve inverted, a sea change was taking place in eurozone bond markets, with yields on German, French and Dutch two-year debt above 0% for the first time since 2014.
Yields across the bloc ended March with their biggest monthly rise in about a decade, according to expectations from the ECB, which is expected to push its deposit rate from minus 0.5% to 0% soon and more.
This would be a key moment for negative yielding debt, whose global volumes exceeded $18 trillion in 2020. Savers, banks and pension funds should all benefit; risky corporate debt and emerging markets that have benefited from investors’ “hunting for yield” could be losers.
But calling a change in trend in these volatile times is not easy. The next few days could show whether the return to returns above 0% is truly sustainable.
(4) On Wednesday, the last minutes of the FOMC were released.
Judging by the inversion, albeit brief, of a closely watched part of the Treasury yield curve, the risks of a recession in the United States are increasing.
An inverted curve has a strong track record for predicting recessions, but how to interpret recent bond moves presents a conundrum for investors.
After the Federal Reserve’s March 16 meeting offered a glowing assessment of the economic outlook, stocks are cashing in on bond selling in their wake.
Wednesday’s minutes from that Fed meeting should show how policymakers view the outlook. They have already signaled bigger rate hikes to rein in inflation, which is at its highest level in four decades. Details on how quickly the Fed could shrink its $9 trillion balance sheet would also be key, a risk some think markets are underestimating.
(5) The Bank of Japan (BoJ) remains the most accommodative major central bank.
The Bank of Japan put its money in its mouth, proving its position as the most accommodative major central bank in the world. Its standing offer to buy benchmark government bonds signals a strong defense of its yield curve control policy.
The effect of this frenzy is debatable: Yields have fallen only slightly from six-year highs, and it arguably has as much to do with US Treasury yields falling from multi-year highs.
And there’s a collateral victim of the BOJ’s hyper-easing: the yen, which has plunged to depths not seen since 2015. While the BOJ maintains that a weaker currency is overall positive for the economy, the hangover of a line of government officials suggests a different view.
Meanwhile, Australia’s central bank is meeting on Tuesday and while a policy change is not expected, the bank could go further in laying the groundwork for a rate hike. The markets expect one around June.
Top Zacks #1 Ranking (STRONG BUY) Stocks
I continue to note improvements in the outlook for Zacks Growth’s large-cap stocks, across a number of diverse industries.
(1) Tesla (TSLA – free report): Yes, this stock is back on our #1 list. I see a stock price of $1,078 and a market cap of $1.082 billion. Zacks Value score is F (no surprise there), Zacks Growth score is A (no surprise there) and Zacks Momentum score is D (some surprise there).
(2) Advanced microdevices (AMD – free report): It is a $109 stock with a market capitalization of $131 billion. I see a Zacks Value score of F, a Zacks Growth score of B, and a Zacks Momentum score of C.
(3) The Kroger Company (KR – free report): The races are still hot. It is a $57 per share stock with a market capitalization of $41.4 billion. I see a Zacks Value score of C, a Zacks Growth score of B, and a Zacks Momentum score of D.
Key global macro
The release of the FOMC minutes is the big event, followed by the RBA meeting.
Monday, a Eurogroup meeting lasts all day. Obviously, this is the Russian war against Ukraine.
The Bank of Canada’s (BoC) “Business Outlook Survey” will also be released.
TuesdayMainland China celebrates Ching Ming Festival and Tomb Sweeping Day.
The Reserve Bank of Australia (RBA) releases its interest rate decision.
The Eurozone S&P Global Composite is expected to be stable at 54.5.
The S&P Global Composite for the US should be stable at 58.5.
Wednesday, US MBA mortgage applications through April 1 are released. Are they falling after the last rise in 30-year fixed rates?
The FOMC minutes will be recorded.
ThusdayFed hawk James Bullard delivers a speech.
US weekly jobless claims are released. The 4-week average is at 208.5K.
Fridaythe jobless rate for canadian households should stand at 6.0% in march, compared to 5.5% in february.
John Williams of the New York Fed delivers a speech.
I would be on the lookout for any significant, fresh, headline-grabbing news from any Russian-Ukrainian negotiations.
On top of that, any headline-grabbing news from mainland China, both on how they intend to handle Russia, how they are handling COVID, and how they have the intention to ease monetary policy and support their stock market valuations, would be important.
In short, diplomatic and macroeconomic relations between major countries remain strained.
Big moving news in the market that dampens what would lead to a material shift in the 12-month outlook.
Happy trading and investing!