Snoozing While Rome Is Burning: Global Week Ahead

Lately, it seems to me, government events take a front seat. Global macro data takes a back seat.

Equity traders continue to read striking political headlines, one after another. Primary government actors are falling and rising across the globe in 2016.

However, equity traders seem to take each political event in stride. One after another, a shock vote has been eventually shrugged off. At the same time, traders playing other global markets --namely currencies -- are not sanguine.

This Global Week Ahead should be no exception. Don’t expect stock traders to notice anything but the money printing fun -- coming gratis the ECB’s Mario Draghi. He speaks to us on Thursday. Expect FX traders to be wide-awake -- acting on all headlines.

Over the weekend, Italians emphatically said NO to government reforms. Prime Minister Matteo Renzi stepped down on Monday. His proposed constitutional reforms included a Senate amendment to weaken its influence.

Exhibit A: The main trading action was in Italian debt, and secondarily, the euro. Equities took that Italian decision in stride.

In the U.K., the sitting government’s appeal against a lower court decision requiring a parliamentary vote to trigger EU Brexit begins on Monday. The president of the U.K. Supreme Court warned us of “threats of serious violence and unpleasant abuse” against those who brought this case.

Expect the U.K. pound to move on that decision! Equities? Maybe hit the snooze button again.

On Thursday in the Global Week Ahead, traders should expect the ECB’s Mario Draghi to extend its 80 billion per month asset purchase program by 6 more months.

Europe and the USA remain divided by relative macroeconomic weakness and strength. The Eurozone has a 9.8% unemployment rate. The USA has a 4.6% unemployment rate. In the Eurozone, there is also little to no consumer inflation. Mr. Draghi wants to see “sustained” increases in the CPI to get comfortable about the path up in underlying wages.

What of the ECB decision? Perhaps global equity traders wake up then!

Before the U.S. market opens on Thursday, the latest Chinese trade data gets released. This data should show a pickup in exports for NOV and confirm an improvement in global demand from the USA and Europe.

Look even further ahead. There’s another big political event later this month.

Japan’s Prime Minister Shinzo Abe will make a historic visit to Pearl Harbor in Hawaii. He will remember the dead of WWII alongside outgoing U.S. President Barack Obama. This will be the first sitting Japanese PM to visit Pearl Harbor in the 75 years since that war began. It follows up on President Obama’s historic visit to Hiroshima.

All of us in stocks should remember this from Pearl Harbor. Not all political events can be shrugged off so easily.

Top Zacks #1 Rank (STRONG BUY) Stocks—

BASF (OTC:BASFY) : This is the big $79 billion market cap German-based and European trading diversified chemicals company. It gets a Zacks #1 Rank and a Zacks VGM score of A.

Tilly’s (NYSE:TLYS) : This is a small $420 million market cap West Coast retail apparel and shoe company. Surfers will know this name well. The shares get both a Zacks #1 Rank and a Zacks VGM score of A.

Big 5 Sporting Goods (NASDAQ:BGFV) : Tis the season to talk up retail stocks. Here’s another West Coast small cap name, with $400 million in market cap. This sporting goods stock garnered a Zacks #1 Rank and a Zacks VGM score of A. There’s a 3.3% annual dividend to collect here too.

Key Global Macro—

U.S. macro data looks quiet. University of Michigan sentiment hits on Friday. We have 3 Fed speakers, with Dudley on Monday looking the most important. A 1-week quiet period, before next week’s FOMC meeting, hits after Tuesday.

Big event news: the update on ECB monetary policy decisions out on Thursday.

On Monday, Italy lost its young prime minister, due to a poor result in the latest referendum asking to reform the government processes.

In other Italian news, the Italian PMI for services came in strong at 53.3. The services PMI came in at 51.6 for France and 55.1 for Germany. For the Eurozone as a whole, the services PMI came in at 53.8 and the composite PMI was 53.9.

In marked contrast, the Brazil composite PMI should be 44.0.

The Fed’s Dudley speaks in NYC and Evans speaks in Chicago.

On Tuesday, Australia announces its latest overnight policy rate. Look for 1.5%.

Final Eurozone GPD growth should be +1.6% y/y.

Mexico’s private domestic consumption should be 5% y/y, up from 4.4% prior.

Australia’s GDP growth looks to get to +3.9% y/y from +3.3% prior.

On Wednesday, the Bank of Canada monetary policy rate will be set. Look for any move from 0.5%.

On Thursday, the ECB’s Mario Draghi gives a press conference following the ECB’s latest rate announcement and update to its QE path. The deposit rate is negative at -0.4% and the refi rate is 0.0%. This is the big event of the week.

Mainland China issues its latest Export and Import data.

On Friday, Fitch will re-rate European sovereign debt.

University of Michigan sentiment should get to 96 from 93.8 in the USA.

BASF SE (DE:BASFN) (BASFY): Free Stock Analysis Report

BIG 5 SPORTING (BGFV): Free Stock Analysis Report

TILLYS INC (TLYS): Free Stock Analysis Report

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