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Global Week Ahead: Two Big IPOs in Europe and the PCE in the U.S.

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In the Global Week Ahead, inflation signals from the United States, Australia and Japan are a key focus, for bond and stock traders alike.

This follows a deluge of central bank meetings last week. Ones that included a historic Bank of Japan (BoJ) rate hike.

This week, Sweden's Riksbank could add to drama around who cuts rates. Now that Switzerland has kicked off easing among big central banks.

Finally, Europe's IPO wheels are turning.

Next are Reuter’s five world market themes, reordered for equity traders:

(1) This Week, Two of the Biggest European IPO’s in the Last 12 Months Happen.

The launch of two of the biggest European initial public offerings (IPOs) of the last 12 months is in traders' sights.

The market wants some equity market success to unlock a vital cog in the financial system and spur more dealmaking.

CVC's perfume retailer Douglas raised around 850 million euros ($922.93 million). It priced its shares at bottom of an indicated range. They plummeted more than 12% on their debut on Thursday.

But skincare company Galderma (GALD), opens new tab priced its 2.3 billion swiss franc ($2.56 billion) IPO at the top of an indicated price range and soared on its first day trading Friday.

A good performance might help other companies follow suit, including CVC itself.

That should help release pressure building on private equity firms needing to exit investments, return capital and deploy funds.

(2) On Friday, watch out for the U.S. Personal Consumption Expenditure Price Index (PCE). The Fed’s preferred inflation measure lands.

A March 29th U.S. inflation reading is critical for markets after the Federal Reserve stuck with a view for rate cuts this year, even with a stronger economic outlook.

The February Personal Consumption Expenditures Price index is expected to show a +0.4% monthly increase, according to a Reuters poll. January's PCE index rose +0.3%, while the annual increase in inflation was the smallest in three years.

The Fed just upgraded its view on inflation - projecting that the PCE index excluding food and energy would rise at a +2.6% annual rate by year-end, compared with +2.4% in its December projections. It also lifted 2024 economic growth estimates.

Any suggestion in the data that inflation is picking up could dash hopes that Fed easing will start soon, with a go-slow approach likely to continue.

(3) What Other Moves Come from the World’s Central Banks?

Traders love a bit of excitement, and there has been plenty lately - a BOJ rate hike and a surprise Swiss cut.

The Swiss move, plus the Bank of England (BoE)'s hint at easing, means it is game on for June rate cuts from other big central banks.

Data and central-bank speak in coming days will be watched closely.

The question is the U.S. Fed. It is sticking with a plan for three rate cuts for now, but strong data and sticky inflation could derail that.

Where does that leave investors? They favor government bonds in Europe and selling currencies where rate differentials with the Fed are opening up.

No surprise that the Swiss franc slumped after Thursday's SNB cut and even the buoyant U.K. pound took a knock from a dovish BoE.

(4) In Asia-Pacific, the Reserve Bank of Australia (RBA) Sets Monetary Policy.

Just as the Reserve Bank of Australia (RBA) thought inflation was finally coming to heel and the time was ripe to tone down its tightening bias, blowout employment figures have delivered a nasty shock.

The RBA will likely watch Wednesday's inflation print for any upside surprises, given February's data will capture more price changes for a range of services - which has been declining at a slower pace than for goods.

Across Asia, any further easing of inflation in Singapore and neighboring Malaysia is unlikely to significantly sway policymakers, who are expected to keep monetary policy unchanged for some time.

Tokyo's consumer price figures caps off a data-light week for Japan on Friday. That may be met with less excitement given that the Bank of Japan, has finally now hiked rates for the first time in 17 years.

(5) In Europe on Wednesday, Sweden’s Central Bank, the Riksbank, Sets Policy.

Sweden's central bank, the world's oldest, is expected to keep its key rate unchanged on March 27th. But it could announce that a cut, the first since it began tightening policy in spring 2022, is nearing.

Headline inflation has slowed to near the Riksbank's 2% target and growth has ground to a halt as households and businesses struggle with rates at over 15 year-highs.

In February, the central bank said rates had peaked and that it could even start to ease policy in the first half of 2024.

Rate-setters remain worried, however, about the risks of setbacks - particularly the chance of a weaker Swedish crown if the Riksbank gets out of step with the ECB and U.S. Federal Reserve.

As a result, markets see a first rate cut in May or June.

Top Zacks #1 Rank (STRONG BUY) Stocks

(1) ARM Holdings PLC Sponsored ADR (ARM - Free Report) ): This is a $133 stock in the Technology Services industry. The market cap is $135B. I see a Zacks Value score of F, a Zacks Growth score of C, and a Zacks Momentum score of F.

Zacks Investment Research
Image Source: Zacks Investment Research

Arm Holdings plc (formerly an acronym for Advanced RISC Machines and originally Acorn RISC Machine) is a British semiconductor and software design company based in Cambridge, England.

Its primary business is the design of central processing unit (CPU) cores. Ones that implement the ARM architecture family of instruction sets.

Arm also designs other chips, provides software development tools under the DS-5, RealView and Keil brands, and provides systems and platforms, system-on-a-chip (SoC) infrastructure and software.

As a "holding" company, Arm also holds shares of other companies. Since 2016, it has been majority owned by Japanese conglomerate SoftBank Group.

Arm's main CPU competitors in servers include IBM, Intel and AMD.

(2) Li Auto (LI - Free Report) ): This is a $31 stock in the Foreign Auto industry. The market cap is $36.2B. I see a Zacks Value score of B, a Zacks Growth score of A, and a Zacks Momentum score of A.

Zacks Investment Research
Image Source: Zacks Investment Research

Li Auto Inc. is a Chinese electric vehicle manufacturer headquartered in Beijing, with manufacturing facilities in Changzhou.

Founded by Li Xiang in 2015, the company mainly builds electric vehicles that use range extenders for a power supply.

This Chinese electric vehicle company debuted on the Nasdaq in 2020.

In 2022, Li Auto thoroughly refreshed its portfolio, implementing a new styling language and expanding the model range from the current one SUV Li One, to three completely new designs.

• The first of them was the flagship Li L9, which debuted in March.
• Then, in September of the same year, a shortened variant called Li L8 and
• An even smaller version Li L7 were presented, the only one without the third row of seats, as the basic model in the new range of the Chinese company.

Li Auto has vehicle manufacturing, engineering, and design services located in Changzhou, Jiangsu with corporate headquarters and research and development located in Beijing.

(3) Vulcan Materials (VMC - Free Report) ): This is a $275 stock in the U.S. Building Products industry. The market cap is $35.9B. I see a Zacks Value score of D, a Zacks Growth score of C, and a Zacks Momentum score of A.

Zacks Investment Research
Image Source: Zacks Investment Research

Vulcan Materials Company is engaged in the production, distribution and sale of construction aggregates and other construction materials in the U.S. and Mexico.

The company has four operating segments: Aggregates, Concrete, Asphalt Mix and Calcium.

The Aggregates segment produces and sells aggregates like crushed stone, sand and gravel and other aggregates. The end users include public construction as well as private residential and private non-residential (manufacturing, retail, offices, industrial and institutional) construction.
The Asphalt Mix segment produces and sells asphalt mix. Aggregates are a major component in asphalt mix.
The Concrete segment deals with the production and sale of ready-mix concrete in various US sates. This segment functions as a customer of the Aggregates segment, as aggregates are a major component in ready-mix concrete.
The Calcium segment produces calcium products for the animal feed, plastics and water treatment industries with high-quality calcium carbonate material.

Key Global Macro

Friday’s core PCE data, and Jerome Powell’s speech, are top market-moving events.

On Monday, U.S. new home sales for FEB should be 0.673M, rising from a prior month’s 0.661M.

On Tuesday, U.S. durable goods orders for FEB come out. Ex-defense orders should be up +1.0%, following a -7.3% prior monthly print in JAN.

On Wednesday, the influential Fed Governor Chris Waller speaks.

On Thursday, traders get to review the 2nd revision of U.S. Q1 real GDP growth. The ‘advance’ print was +3.2%.

On Friday, U.S. core and broad PCE measures hit the tape in the morning. The prior core reading was +2.8% y/y. The prior broad PCE reading was +2.4% y/y.

Fed Chair Jerome Powell speaks in the afternoon.

This is also the Good Friday holiday.

Conclusion

Here are Zacks Research Director Sheraz Mian’s four key Q1 EPS season hints:

(1) Expect total S&P500 earnings for Q1-24 to be up +2.1% from the same period last year, on +3.4% higher revenues.

This follows the +6.5% earnings growth, on +3.8% higher revenues in Q4-23.

(2) Estimates for Q1-24 have come down since the quarter began.

Though the magnitude of cuts compares favorably to what we experienced in the comparable period for the preceding quarter.

(3) The Tech and Energy sectors are having the opposite effects on the Q1-24 earnings growth pace.

The Energy sector is pulling it down, and the Tech sector providing a boost.

(4) For Q1-24, expect ‘Magnificent 7’ earnings to increase +33.4%, on +13.4% higher revenues.

Excluding the Mag 7 contribution?

Then, Q1-24 earnings for the rest of the S&P500 index would be down -3.6% from the year-earlier period (versus +2.1% growth otherwise).

Have a successful week trading and investing,

John Blank, PhD

Zacks Chief Equity Strategist and Economist


 


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