After watching elected officials vote on a bill and admit to not actually reading it, investors will be looking forward to more stupidity from its elected officials. In the meantime, the adult in the room (the stock market) will be turning its attention to the latest out of earnings and the price of oil. On the economic calendar, we have CPI, Retail Sales and PPI.
French Election: Last night was the result of the French election in the world’s 6th largest economy. As Emmanuel Macron was declared the winner, we may see an additional bump from the confidence in the markets once they open on Monday. We will also see a move into more risk off assets and a potential sell off in gold.
Earnings Season: 1Q Earnings season starts to wind down but we still have 42 S&P 500 companies and 1 Dow component expected to report this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, with approx. 82% of S&P 500 companies reporting 1st quarter earnings, 64% reported revenue above expectations while 75% have reported earnings above expectations. Both of these figures are above the last 4 quarters averages. These figures are also higher than what we witnessed with earnings last quarter. The blended earnings growth estimate is now over 14%. Additionally, the S&P 500 forward PE ratio is currently at 17.7X which is also near a decade high. So on a historical basis, the S&P could potentially be considered overvalued.
CPI: On Friday (5/12), CPI is released. The previous months CPI reading came in below 0, indicating that prices went down over the period or deflation, mostly on the backs of a weak energy component. Investors will watch to see if this number reverses and beats expectations, which would likely send the markets higher. A strong reading would also add fuel for a potential rate hike next month.
Oil: Oil tumbled over 6% last week and even had a mini flash crash last Thursday night (5/4) sending oil down to below $43. Oil has been tumbling thanks to a slowdown of consumption in China, US Crude Inventories building, and of course those silly algos. This is oil’s lowest level since OPEC agreed to a cutback in November. Some of the commodity sensitive currencies such as the Canadian Dollar, Australian Dollar and Russian Ruble also dropped for the week. Investors will be watching to see if oil continues to fall, pushing down energy stocks, commodity sensitive currencies and their respective stock markets. The move lower would likely send investors into safe haven assets such as the Japanese Yen, Treasurys and gold.
Central Banks Speak: Multiple central banks will be making policy statements including the Bank of England and the Reserve Bank of New Zealand. For England, they are scheduled this week to publish its policy decision, minutes of the meeting, official votes and new forecasts. Investors will be listening to how the potential divorce from the EU may affect monetary policy. We will likely see stocks and foreign exchange to be affected. For New Zealand, we will get our latest ratio of sheep to people and consumer consumption of Tui beers.
Where’s the volatility? For the last 8 sessions, the Dow and S&P 500 have seen movements of less than 0.2% in either direction. This is something that has not happened in 53 years. Even with weak economic data for 7 consecutive weeks, and a ton earnings, markets have shown little reaction. The VIX (a measurement of volatility) dipped below 10 earlier this week for the first time in 10 years. Investors will continue to wait for some type of catalyst to which may send the markets even higher, or a pullback, or if we continue to see very little volatility.
G7 Meetings: The Group of Seven ((not 6, 7) used to be 8)) meets at the end of the week. At the meetings they will be discussing global economic issues. Officials will give interviews to reporters during the day but these meetings are closed to the press. If an official makes a certain statement about a change in policy, we will likely see currency markets being impacted. At the conclusion of the meetings, officials will come out with an official statement.