To kick off this upcoming global week, let’s take a look at the latest Q1-22 earnings season data.
According to Zacks Research Director Sheraz Mian on May 4, 2022 —
“As for the Q1 earnings season dashboard, we now have results for 417 members of the S&P500, or 83.4% of the total index members.
“Total profit for these companies is up:
- +8.6% compared to the same period last year
- +14.9% increase in turnover, with
- 80.6% exceeding EPS estimates, and
- 75.8% exceeding revenue estimates
“Excluding the -16.3% decline in financial sector earnings, first-quarter earnings for the rest of the index members who reported would be up +15.4%.
“On the other hand, the +202.1% increase in Energy sector earnings improves overall growth. Excluding the Energy sector, Q1 earnings growth drops to +2.6%” .
This is followed by Reuters’ five global market themes, rearranged for stock traders –
(1) Searing inflation is giving central bankers a sense of urgency
The Fed made its biggest rate hike in 22 years, Australia rose more than expected and India weighed in with an out-of-meeting decision.
But the rush to tighten policies adds to the storm clouds gathering over the global economy, hit by soaring food and energy prices, the war in Ukraine and COVID restrictions in China. The Bank of England, while raising rates, also signaled recession risks.
Germany’s ZEW confidence index and preliminary UK Q1 GDP data will highlight central banks’ tightrope walk. And in emerging markets, Mexico, Peru, Malaysia and Romania should confirm that the rate hike cycle continues.
How to curb inflation without slamming the brakes on growth? This is the delicate task facing central banks. But as others grapple with soaring prices, we’ll see how China’s COVID lockdowns rumble on trade and slow its economy.
And another complication – M&A deals worth more than $400 billion are waiting for financing, but the costs are rising rapidly.
(2) On Wednesday, April, US Consumer Price Inflation (CPI) is released
Is US inflation peaking after fastest rise in over 40 years? April’s consumer price index, due Wednesday, will show this.
March CPI came in at 8.5% on an annualized basis as gasoline prices hit record highs. On a monthly basis, the CPI jumped 1.2%, the biggest increase since September 2005.
The first forecasts are for a monthly increase of 0.2%.
The March inflation spurt likely sealed the Fed’s 50 basis point rate hike on May 4.
The upcoming inflation release could influence expectations about how monetary policy will be adjusted in the future.
(3) When do COVID lockdowns end in China?
China’s anti-COVID lockdowns give every indication of a stretch into spring.
Along with the pressure on tens of millions of people, the damage to economic prospects – in China and around the world – is immense.
And the markets’ patience with limited policy support is running out. If trade figures.
Iron ore, oil and copper prices are already teetering. In the teeth of a steep U.S. bull cycle, the slowdown also bodes ill for the faltering Chinese yuan and, in turn, for foreigners who have put their money in local markets.
(4) May 9 celebrations take place in wartime Russia
Banning Russian oil imports seems to be a matter of when, not if, for the European Union. The bloc is set to accept its sixth and fiercest set of sanctions against Moscow for invading Ukraine, according to the bloc’s top diplomat.
The centerpiece of the package is a gradual embargo on Russian oil, which accounts for more than a quarter of EU imports. The move will push European refineries into a race to find new crude suppliers and leave drivers with bigger bills at the pumps at a time when the cost of living crisis is squeezing consumers around the world.
Meanwhile, Russia will hold the annual Victory Day on May 9 in Moscow to mark the anniversary of the Soviet Union’s triumph over Nazi Germany. The Kremlin dismissed speculation that President Vladimir Putin planned to declare war on Ukraine and a national mobilization on the highly symbolic day.
(5) Global M&A Trading Recovers
Global transactions are recovering after a fall in the first quarter caused by Russia’s invasion of Ukraine.
April mergers and acquisitions rose 30% from March to $387 billion, and included mega-deals such as Elon Musk’s $44 billion takeover Twitter and a 58 billion euro ($61.04 billion) bid from a consortium for the Italian airport and highway operator Atlantic.
Today’s M&A market faces another challenge: financing.
Globally, more than $400 billion in deals have been announced since January but have not closed, according to Refinitiv data.
Mergers and acquisitions agreements typically include “base financing”, a pre-arranged package offered to potential buyers to finance the acquisition. Once the deal is done, the buyer can syndicate the financing, inviting other banks to join. Or it can tap into the bond or stock markets.
But financing costs have skyrocketed since the deals were struck. Average yields on global corporate debt have climbed 100 basis points since the Feb. 24 invasion, and 150 basis points on junk-rated U.S. companies, according to the ICE BofA indices.
This left huge cases unresolved. They include Microsoft purchase of ActivisionBlizzardMusk’s acquisition of Twitter and an investment from Macquarie and the Investment Management in British Columbia in UK national network.
Top Zacks #1 Ranking (STRONG BUY) Stocks
(1) Total energies (TTE – Free Report): This is a French oil major at $53 per share, representing a market capitalization of $136.8 billion. I see a Zacks Value score of A, a Zacks Growth score of A, and a Zacks Momentum score of B.
(2) Volkswagen (VWAGY – free report): It is a German automaker at $21 per share, representing a market capitalization of $105.6 billion. I see a Zacks Value score of A, a Zacks Growth score of F, and a Zacks Momentum score of A.
(3) Airbnb (ABNB – free report): This is the online vacation home reservation service in the United States. The shares are trading at $143, or a market capitalization of $91.8 billion. I see a Zacks Value score of F, a Zacks Growth score of C, and a Zacks Momentum score of A.
Key global macro
The macro scene is all about the data ahead of producer price inflation (PPI) and downstream of consumer price inflation (CPI) this week.
Monday, mainland China’s exports in April were only +3% year-on-year, after +14.7% the previous month. Imports were unchanged from -0.1%y/y in the previous month.
Tuesday, the German ZEW polls are out for May. The current situation appears to be -42.5, worse than the previous reading at 30.8. Economic sentiment appears to be at 40.4, in line with the previous reading of -41.
The Fed’s Williams, Barkin, Waller, Mester and Bostic deliver speeches. Unsurprisingly, US CPI data arrives the next day.
Wednesday, the Mainland China Producer Price Index (PPI) for April is released. Expect a decline to +6.5%y/y vs. +8.3%y/y. This is a necessary drop for global CPI rates to fall.
The German HICP consumer price inflation rate for April is expected to be +7.4% year-on-year, similar to March. At least that number shouldn’t increase this month!
US CPI excluding food & energy is expected to be +6.0%y/y in April, from +6.5%y/y in March. Again, this will be welcome macroeconomic news.
Broad US CPI is expected at +8.4%y/y, down one notch from +8.5%y/y in the previous month.
ThusdayAustralian consumer inflation expectations for May are expected to be +4.8%y/y, from +5.2%y/y in April.
The US Producer Price Index (PPI) for April is expected to be red at +12.2%y/y, from +11.2%y/y in the prior month.
FridayConsumer sentiment from the University of Michigan is expected to be very low again at 66.5, but a notch above the previous reading at 65.2.
Conclusion
This week’s macro data printouts that I have listed show: This coming global week will be focused on consumer and producer price inflation data.
If the latest April data shows the beginning of a decline in CPI and PPI inflation rates, equity markets will sing a brighter tune.
Happy trading to you all!
Best wishes,
white jeans
Zacks Chief Equity Strategist and Economist
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