The Fed In The Main Circus Tent: Global Week Ahead

In the Global Week Ahead, stock markets and central bankers the world over brace for a rate hike from the USA.

After last Friday’s sudden tech-stock sell-off, will momentum traders — in NY and London alike — keep selling pressure on the risk markets going into this meeting?

Or will bargain hunters overwhelm them? Buy the dip, right?

On Wednesday, a two-day United States Federal Open Market Committee (FOMC) meeting produces a 2 pm ET statement. This will be accompanied by fresh forecasts.

Consensus expects a 25 basis point rate hike. Expect further FOMC detail surrounding its reinvestment plans -- on a huge QE-inflated balance sheet.

Chair Janet Yellen’s presser should be the main trader event.

Regarding the FOMC summary outlook, expect a cautious tone. The ‘dot plots’ of all the individual contributors will be watched for internal dynamics. Realize the Fed members are mostly trained economists. They will remain data-dependent.

Recent U.S. macro prints foretell dovish guidance.

1. Consumer Inflation is feeling downward pressure of late. Ditto for wages.
2. Job growth averaged just +121K the past three months.
3. U.S. GDP grew by +1.2% in Q1. GDPNow for Q2 is +2.8%. Average quarterly first-half growth sums to a ‘muddle through’ +1.5% rate.

After this mid-June meeting, the FOMC should shift to the sidelines. Coming meetings can steadily evaluate second half U.S. and global risks, growth rates, jobs and the dollar — and monitor the waning pressure underlying recent inflation data.

The September meeting should give up a third and final 25 bps rate hike this year.

On Thursday and Friday, traders get follow-on money policy from abroad.

1. United Kingdom: Don’t expect policy changes from the Bank of England (BoE). The BoE should state it is looking at any upside risks to inflation as transitory. Watch for any statements that concern the recent parliamentary election.

2. Japan: The Bank of Japan’s (BoJ) policy and guidance should center on whether the central bank lessens bond purchases -- in a mini-taper of sorts.

3. Indonesia: Expect the Bank Indonesia to leave its 7-day reverse repo rate unchanged at 4.75%. That country’s all-important inflation rate is running at +4.3% y/y. This is close to their +3% inflation target. Growth this year should be similar to last year, at +5.0% y/y.

4. Russia: Expect the Bank of Russia to deliver another rate cut of 25 to 50 basis points.

5. Switzerland: Expect the Swiss National Bank to leave its policies intact. This small nation’s monetary policy outlook relies heavily on the European Central Bank.

This sums up to a monetary policy pile-up. It should make for a packed end to the Global Week Ahead.

Top Zacks #1 Rank (STRONG BUY) stocks—

Siemens (OTC:SIEGY) : This is the $122 billion market cap Germany electronics giant. The Zacks long-term VGM score is a D, but that comes with a B in Value.

Applied Materials (NASDAQ:AMAT) : Yes, the long-term Zacks VGM score is B. But do the tech stock short-sellers care? Watch the price dynamics on stocks like this all week long.

Intuitive Surgical (NASDAQ:ISRG) : Much has been made of overpriced stocks. This one is priced at a cool $916 a share when I looked. That comes with an easily-won Zacks VGM score of F, with a conclusive F in Value.

This Medical instruments stock has a terrific surgery room robot, but how many surgery rooms are left to implement it?

Key Global/Macro—

The Fed meeting wraps up Wednesday. That is the event held in the main circus tent. Thursday and Friday have the usual pile-up of quid pro quo monetary policy meetings.

Conservative central bankers want to get all of their ducks in a row, before holding any serious meeting.

On Monday, Turkey’s GDP growth rate came in at +5.0% y/y. The prior read was +3.5%.

The consumer inflation rate (CPI) in India looks to come in at +2.8% y/y.

On Tuesday, the closely watched ZEW indexes hit from Germany. Current Conditions was at 83.9 while Economic Sentiment was at 20.60.

The NFIB small business optimism index should get to 105 from 104.5.

Broad retail sales in Brazil look to decline to -3.0% from -2.7% y/y.

On Wednesday, the 2-day FOMC meeting in the USA concludes. The Fed Funds rate at 1.0% should go to 1.25%.

Retail sales in China looks set for another +10.7% y/y climb. It sounds strong, but it looks canned.

The final HICP inflation reading in Germany comes out. The prior was +1.4% y/y.

Argentina’s unemployment rate is forecast to climb to 8.0% from 7.6%.

On Thursday, the Bank of Indonesia looks to hold the line on its repo rate, at 4.75%.

The Bank of England (BoE) meets and issues a rate decision.

The Swiss National Bank (SNB) holds a monetary policy assessment meeting.

U.S. initial claims should be low again. The last reading was 243K.

On Friday, the Bank of Japan (BoJ) issues a policy statement and Governor Kuroda holds a press conference. The overnight rate is -0.1%. Yes, that’s a negative rate.

The Eurozone HICP inflation rate comes out. The core rate should be +0.90% y/y.

U.S. building permits and housing starts come out. Look for starts to go from 1.172M to 1.260M. Meanwhile, look for permits to go from 1.228M to 1.260M.

The summer building season heats up.

Siemens AG (DE:SIEGn) (SIEGY): Free Stock Analysis Report

Intuitive Surgical, Inc. (ISRG): Free Stock Analysis Report

Applied Materials, Inc. (AMAT): Free Stock Analysis Report

Original post

Zacks Investment Research