Markets

Second Half of 2018 Begins: Global Week Ahead

This Global Week Ahead is likely to get off on the wrong foot.

On Monday - with trading already finished up in Asia - Mainland Chinese stock indexes suffered through one of their most pessimistic days this year. This led to a knock-on decline across other Asian markets. The Asian sell-off then ripped up European sentiment, as trade war fears dominated the start of the second half of 2018.

The CSI 300, a key index of big China stocks listed in Shanghai and Shenzhen, closed down -2.9%. This was its fifth-sharpest daily decline this year, according to Reuter's data.

Japanese and South Korea stock markets both ended down more than -2.0%, while the Europe-wide Stoxx 600 was -0.7% weaker when I looked in.

For the remainder of this 4-day U.S. trading week, here are Reuters in London's five big world market themes. These are likely to dominate the thinking of investors and traders.

I list them in order of importance to global equity markets.

(1) Second Half of 2018 Begins

It has been the worst first-half of a year for global stocks since 2010 as a mix of U.S.-China trade tensions, central banks turning off the money taps and cooling growth in Europe wiped a trillion dollars off MSCI's 47-country world index.

But let us put that behind us - Monday is the first trading day of the second 2018 half.

What lies ahead?

What is certain is that the U.S. Fed will raise interest rates again, at least once, possibly twice. The ECB will end its bond-buying at the end of December. The Bank of England, the Bank of Canada and some big emerging market central banks will also raise interest rates.

The question is whether more misery lies in store for assets such as Chinese stocks, which have entered bear-market territory. The yuan's fate will be key to other emerging markets after losses of 5-8 percent on stocks and bonds.

So who will emerge the winner?

At this point it is the FAANG U.S. tech stocks, which collectively are up almost 40 percent.

Whether the gains continue may depend on trade politics and Fed policy - a more aggressive Fed could ensure 10-year yields rise above 3 percent again and stay there.

(2) Big Friday U.S. Non-Farm Payroll Print Happens

June's U.S. unemployment data, due Friday, will be closely watched for further signs of a tightening labor market.

Unemployment data for May boosted markets, with the rate falling to an 18-year low, pointing to strength in the U.S. economy, and helping send stocks up around 1 percent that day.

Non-farm payrolls surged by 223,000 jobs during that month, as warm weather bolstered hiring at construction sites. June's data is expected to show a 200,000 increase, according to a Reuters poll.

The closely watched hourly wages in May rose 0.3 percent, topping economists' estimates. The same figure is expected in June.

(3) U.S.-China Trade War Shifts Up a Gear

The Sino-U.S. trade conflict is about to shift into a higher gear, with additional tariffs on Chinese imports kicking in on July 6.

Respective market moves indicate the United States has won Round One of the tariff war - the yuan just clocked up its worst month on record while China's stock market suffered its deepest monthly slide since January 2016.

This week, the yuan will take center-stage as investors wonder what action, if any, Beijing might take to stem the currency's slide. Chinese policymakers are known for their readiness to intervene in the economy and financial markets and economy at any opportunity but they seem less interventionist this time.

This could, of course, show commitment to a long-promised liberalization process. More likely though, authorities are signaling their readiness to use yuan weakness as a response to U.S. import tariffs.

The risk is that an extended sell-off feeds off itself, sparking capital outflows. Without an easing in trade tensions it's hard to see the yuan moves reversing, unless manufacturing and service sector surveys next week provide some relief.

(4) Fallout from Presidential Elections in Mexico

The polls showed former Mexico City mayor Andres Manuel Lopez Obrador will be the next president, garnering over half of the votes.

This is the third bid for the key job by AMLO, as the leftist Lopez Obrador is commonly known; his popularity has grown hand in hand with Mexicans' anger at the failure of traditional parties to end record levels of violence and corruption.

His history of protest politics has unnerved investors though and while throughout this campaign AMLO has courted Wall Street, he has still pledged to review a 2013 opening of the oil industry to private producers.

The vote comes at a delicate point for Mexico, which is at odds with the United States over migration and trade, while talks on reworking the NAFTA trade agreement are deadlocked. The new president will have to steer his country through these issues.

The peso sank to a 1 1/2-year low in June, though its weakness has mostly been blamed on a global emerging market sell-off. AMLO's election win looks already priced in.

(5) EU Migration Deal Gets Closed

An EU deal to share out refugees on a voluntary basis and create "controlled centers" to process asylum requests has thrown a lifeline to German Chancellor Angela Merkel, whose coalition government has been teetering on the brink of collapse.

Bavaria's Christian Social Union met on Sunday to decide whether that deal addressed its concerns. They will meet again on Monday night. If not, it could make good on a promise to unilaterally introduce tougher immigration controls, potentially shattering its alliance with Merkel's Christian Democrats and toppling her three-month-old government.

But hopes a political crisis has been averted sent the euro and stock markets rallying on Friday. The gains could extend should the CSU give the agreement the thumbs-up.

Italian debt has been the other beneficiary from the migrant deal. Investors, possibly, have interpreted the compromise by Rome's anti-establishment government with EU peers as boding well for similarly contentious talks on Italian budget policies later this year.

Top Zacks #1 Rank Stocks-

NVIDIA Corp. NVDA : This chip stock is stacking up to $143B in market capitalization. The Value score is F and the Growth score is A. You can call it either way, based on that.

Devon Energy DVN : This is one of the biggest U.S. producers of natural gas. We haven't seen a natural gas producer on this list for some time. It must be because WTI oil prices are rising above $70. The Value score is C and the Growth score is C.

NetApp NTAP : This is a $20B market cap Computer Storage Device stock. With a Zacks VGM score of B, this one may be worth picking up during the trade war sell-off, at some point.

Key Global Macro Data-

There is a load of ISM manufacturing monthly updates, out on Monday, across all global regions.

The big macro fundamental prints come out of the USA. Look for non-farm payroll - on Friday - and the average hourly earnings data.

On Monday , the China Caixin Manufacturing PMI came out at 51.0, versus a prior 51.1. No change is predictable. But no change in the face of a US China Trade War is notable.

The India manufacturing PMI went up to 53.1 from a prior reading of 51.2.

The German manufacturing PMI was 55.9 versus a prior reading of 55.9. Europe is also holding up well, in the face of the trade war rhetoric.

The Eurozone manufacturing PMI was 54.9 versus a prior reading of 55.5.

Eurozone unemployment gets updated. The last reading was 8.5%.

The U.S. manufacturing PMI was 54.6. A new reading comes out.

On Tuesday , the Eurozone retail sales data comes out. It was +1.7% y/y.

Russia's GDP growth went up +1.3% y//y. We get a fresh update.

On Wednesday , the Eurozone composite PMI hits. The prior reading was 54.8.

The Brazil Markit PMI composite was 49.7. We get a fresh monthly reading. This is still weak evidence here.

On Thursday , the US ADP employment survey comes out. Last month at +178K is supposed to get to +205K. That won't move the tape.

US initial claims come out. Last week, it was 227K. That is quite low, still.

The US ISM non-manufacturing index comes out. The prior was quite high at 58.6.

On Friday , U.S. average hourly earnings hit the tape. This can drive up consumer price inflation, which spooks the Fed. The prior reading was +0.3%.

U.S. non-farm payrolls should get to +210K, and the unemployment rate should be 3.8%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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