Earnings Season Peaks: Global Week Ahead

In the Global Week Ahead, it is peak U.S. earnings season.
Watch the latest quarterly FAANG tech earning reports (and chipmaker Intel (NASDAQ:INTC)) the closest.

However, bond rates will remain central to stock markets this week. A break above 3.0% in the risk-free U.S. 10-year Treasury interest rate could be more significant to major stock indexes than the coming raft of company reports.

One would think (superficially) that this Q1 earnings season would get us over the worry about rates—

1. EPS growth stands at +18.3% this quarter, the highest since Q1-2011.
   
2. Three S&P 500 sectors have reported their highest net profit margins since tracking began in Q3-2008.
   
3. That would be Financials (17.7%), Health Care (10.7%) and Materials (11.3%).
   
4. Revenue growth at +7.6% is excellent.
   

But it has been the opposite.

Positive Q1 company earnings and revenue fundamentals cause the long-term U.S rate to move higher.

What’s the compelling trading idea?

The Fed will have to move sooner and more aggressively, to stem the U.S. economy’s overheating.

Here is my rank-order of the five key events for traders --

(1) Earnings reports from 178 S&P 500 firms arrive, with a noted arrival of key large-cap Tech quarterly reports.

Names include Alphabet (NASDAQ:GOOGL), Whirlpool (NYSE:WHR), Xerox (NYSE:XRX), Coca-Cola, 3M, Caterpillar (NYSE:CAT), Lockheed Martin (NYSE:LMT), Visa, AT&T (NYSE:T), Facebook (NASDAQ:FB), eBay, Ford, Pepsi, Time Warner, UPS, GM, Intel, Amazon, Microsoft (NASDAQ:MSFT) and Starbucks (NASDAQ:SBUX).

Investor interest is running high on the FAANG stocks.

Facebook reports on Wednesday. Alphabet (Google) and Amazon post their results on Monday and Thursday, respectively.

(2) The Energy sector is top-of-mind for equity traders right now. European oil majors Shell (LON:RDSa), Total, Statoil (OL:STL) and Eni, and U.S. oil producers Exxon Mobil (NYSE:XOM) and ConocoPhilips, report this week.

Crude’s surge to 2014 highs is a boon to these oil companies’ bottom line. This is supporting the oil major’s share prices. But it could also be approaching the point where it starts amplifying inflation.

(3) On Thursday, the latest European Central Bank (ECB) meeting ends.

Reuter’s reported economists anticipate ECB steps towards winding down QE will come only in June or later. But ECB President Mario Draghi will be pressed on what he thinks about the European economic softness, a possible U.S. China trade war, and the strong euro.

In trade-weighted terms, the euro remains less than one percent below a 3-1/2 year high hit on March 8, the last time the ECB met.

(4) Japan’s central bank (the BoJ) also meets on Thursday and Friday.

Its governor, Haruhiko Kuroda -- the man behind the monetary stimulus -- was reappointed this year. He would survive an Abe exit, as the prime minister is struggling in the polls at the moment. No policy change is expected. The BOJ’s forecasts on inflation will be crucial; sources say it will maintain its view on hitting the target in 2019.

If Kuroda reassures markets the BOJ is nowhere near an exit from ultra-loose monetary policies, investors should stay unruffled by the doubts about Abe’s political future.

(5) According to Scotia Bank in Canada, there is unlikely to be a major NAFTA development over the coming week.
If anything arises, pay particular attention to progress — or lack thereof — on auto content negotiations.

NAFTA guidance — from a named Mexican and from anonymous U.S. officials — points towards momentum for a handshake deal sometime during the first half of May. The timeframe is tightening, given a requirement for the current U.S. Congress to have 6½ months to review the agreement.

On Sunday, the first Presidential candidates’ debate in Mexico occurs.

The coming Mexican election is Andres Manuel Lopez Obrador’s to lose. This left-leaning candidate is polling about half of voter support.

Top Zacks #1 Rank (STRONG BUY) Stocks—

Amazon (NASDAQ:AMZN) : Yes, this is a top Zacks stock right now. The market cap is an incredible $740B but the Value score is F. Zacks price and consensus chart here says this should be a $1,200 stock, not a $1,500 stock.

CNOOC (NYSE:CEO) : This is a big China oil stock, and the only company permitted to conduct exploration and production activities in offshore China areas. The market cap is $74B. The Value score is A.

Western Digital (NASDAQ:WDC) : Yes, this storage stock is still on our top list. The shares hold $27B in market cap. It’s been on our top list for a while, as computer data storage needs continue to get more compelling for the Tech industry. The Value score is A too. Not sure why traders aren’t pushing this stock much higher…

Key Global Macro—

The big event is the ECB policy meeting on Thursday and the Bank of Japan meeting wrapping on Friday. No policy changes are expected. Guidance on a September policy exit may not materialize… yet.

On Friday, we get a first look at U.S. GDP growth.

Look for preliminary U.S. Q1 GDP growth of +2.2%. The Atlanta Fed GDPNow call for +2.0% on April 17th comes in lower than the NY Fed’s Nowcast of +2.9% on April 20th and to the St. Louis Fed’s real GDP Nowcast of +3.5%.

On Monday, the Eurozone composite PMI index met expectations at 55.2. That’s a solid +2% GDP growth number. 60 is the number that’s needed for +3%.

The Eurozone manufacturing PMI came in at expectations at 56.0, ditto the services PMI at 55.0.

In comparison, the U.S. manufacturing PMI is looking for 55.6, about the same as Europe.

On Tuesday, the German IFO indexes come out. Business Climate should go from 103.2 to 112.0, Current Conditions from 106.5 to 125.0 and Expectations from 100.1 to 104. Not sure on the source of the ebullience, but it might be seasonal.

Mexico’s bi-weekly CPI is forecast to fall to 4.74% y/y fro 4.9% y/y.

The U.S. Case-Shiller home price index comes out. The prior was 6.4% y/y.

On Wednesday, South Korea’s GDP growth rate comes out. Look for +3.1% y/y to go to +2.7%.

On Thursday, a European Central Bank (ECB) meeting wraps. The ECB deposit rate should remain at -0.4% and the main refinancing rate at 0.0%.

U.S. durable goods orders ex-transportation are forecast to rise +0.2% from a +1.0% lift last month.

U.S. weekly initial claims look great at 232K. We get an update.

The Japanese unemployment rate is 2.5% and industrial production there should be up +2.0% y/y (that’s strong there), and retail sales up +1.5% y/y.

On Friday, Japan’s overnight rate gets a revisit. No re-set here. It stays at -0.1%.

France’s GDP growth rate should get to +2.5% y/y.

Spain’s GDP growth rate should be +3.1% y/y.

The U.K.’s GDP growth should be +1.4% y/y.

Germany’s unemployment rate is 5.3%. We get a new number.