Q1 Earnings Season Trumps All: Global Week Ahead

After I gathered the core events in this Global Week Ahead, I concluded this:

Coming U.S. quarterly earnings results trump all other offerings.

Any earnings surprise -- these can pop up after any individual release -- can firmly re-set the overall trader tone on the S&P 500 index.

The most provocative top-down thesis may be this: Consensus says global sectors, not domestic sectors, lead the U.S. earnings growth rate higher.

Let’s cover three major regions in turn.

In the United States

In the Global Week Ahead, the U.S. earnings season ramps up.

71 major U.S. firms release Q1 earnings. These large-cap names include Goldman Sachs (NYSE:GS) , Morgan Stanley (NYSE:MS) , Bank of America (NYSE:BAC) , BlackRock (NYSE:BLK) , Bank of NY Mellon (NYSE:BNY) , Visa (NYSE:V) , GE (NYSE:GE) , eBay, (NASDAQ:EBAY) Yahoo (NASDAQ:YHOO) , Netflix (NASDAQ:NFLX) and Johnson & Johnson (NYSE:JNJ) .

Overall, consensus pegs S&P 500 Q1 earnings growth at +9.2% y/y. S&P 500 companies with higher global revenue exposure should outperform more domestic focused outfits.
At the sector level, in Q1, the Info Tech and Energy sector should be the largest contributors to earnings and revenue growth. Those sectors capture the most global demand.

In the diplomatic space, U.S. Vice-President Mike Pence has begun a four-country Asia tour by visiting South Korea.

On Tuesday, Vice President Pence has set a first round of U.S.-Japan talks on trade and the economy in Tokyo with Finance Minister Taro Aso. Officials should release a statement with a timetable for future discussions.

In Brazil

On Thursday, fresh Brazilian inflation numbers come out.

These will assist global financial markets in setting consensus on the direction and pace of future Brazil rates. Last week, Banco Central do Brasil (the central bank of Brazil) cut its SELIC policy rate by 100 basis points to 11.25%. That step down in its policy interest rate was made in anticipation of further downward moves in inflation.

In Europe

A multi-candidate French primary election -- for their next President -- happens Sunday April 23rd.

The primary election results arrive and add to a Continental mix, with European purchasing manager index (PMI) data out on Friday.

This combo should drive a focus on European growth and political risk NEXT week. That sets global markets up for jitters THIS week.

Top Zacks Rank Stocks—

(1) Caterpillar (NYSE:CAT) : The $54.6 billion market cap stock on this manufacturing construction and mining giant is worth watching. It has gotten back to a Zacks #1 (STRONG BUY) rank.

(2) Micron (NASDAQ:MU) : The semiconductor memory market is HOT. This company is the leader in that space. This $29.5 billion market cap stock is a Zacks #1 Rank this week.

(3) Analog Devices (NASDAQ:ADI) : The analog world is all about voice communications. That’s a different networked space. Yet, this semi stock is HOT too. This $27 billion market cap stock captured a Zacks #1 Rank too.

Key Global Macro—

It’s a great week to check up on the U.S. housing market.

On Monday and Tuesday, major U.S. housing releases (permits and starts, plus the NAHB index) show up. Despite a slight drop in building permits issued in February to 1.216 million, March starts look to remain near cycle highs, at 1.2 million. The U.S. housing market is headed to 1.5 million starts eventually.

On Friday, U.S. existing home sales should climb back from a prior month’s dip.

On Monday, mainland China’s GDP clocked in at +6.9% y/y. This was a slight improvement vis-a-vis a prior +6.8% y/y number. Don’t expect much market reaction here.

Mainland China’s retail sales came in at +10% y/y, which was a small beat on the prior +9.9% y/y number too.

The U.S. NAHB builder’s survey index comes out later today. The prior reading was 71.

On Tuesday, the U.S. home building permits numbers come out. Look for 1.24 million, up from 1.216 million in the prior reading. U.S. housing starts should be 1.2 million, down from 1.288 million. The permits number is the forward-looking reading.

On Wednesday, the latest Eurozone HICP inflation number comes out. Look for something around +1.5% y/y.

Russia is watching real wages grow +1.3% y/y. Wage inflation pushes up price inflation. That low a number means no worry on inflation in Russia now.

On Thursday, Brazil’s IBGE inflation rate should be +4.43% y/y, down from +4.73% y/y. This lower rate allows more rate cuts, which is good for stocks.

U.S. initial claims should be near the prior 234K. This is near a historic low.

U.S. leading indicators should be up near the prior 0.6. The positive mark is all that matters.

On Friday, the composite Eurozone PMI should be 56.6 versus a prior 56.4.

Eurozone manufacturing PMI’s should be 56.4, while service should be 56.2. That’s balanced and strong growth in both key European sectors.

The unemployment rate in Hong Kong is 3.3%.