World markets themes for the week ahead

LONDON: The following are five big themes likely to dominate the thinking of investors and traders in the coming week and the Reuters stories related to them. War cries

If fears of a trade war between the world’s two largest economies, the US and China, weren’t enough to set the nerves racing, the two sides are butting against each other in the South China Sea again and Donald Trump has just tossed in the threat of another US government shutdown.

The coming week will probably see a drama involving all three and possibly other elements too that we don’t even know about yet.

However, some experienced analysts suggest that the rout in stocks may not point to panic over a full- scale trade war. Hung, drawn and quartered

The first quarter draws to a close, and what a quarter it has been. Investors have had a lot thrown at them - from the biggest ever rise in stock market volatility to rapidly escalating tensions over global trade, deepening tumult in the White House and tech sector wobbles.

The market ‘ melt- up’ they all talked about in January has melted away, the Dow and S&P are down for the year, and the outlook for 2Q is a great deal more uncertain. Global trade tensions are now infecting investor sentiment and risk appetite, there are signs that growth has peaked ( particularly in Europe), rising dollar interbank rates show no sign of reversing, and the global liquidity pool will shrink this year.

Will the bears continue to gain the upper hand in 2Q, or will the bulls charge again? Growing to plan

The final US government read on fourth quarter GDP on Wednesday will come hot on the heels of the Federal Reserve’s first interest rate hike of the year.

In theory it should be reassuring. The US is a fairly closed economy, and in the fourth quarter Donald Trump was dishing out tax cuts, not threatening trade wars.

The US Commerce Department also said on Friday that new orders for key US- made capital goods rebounded more than expected last month and shipments of core capital goods saw the biggest advance since December 2016.

Other realtime data, though, is not so encouraging. An Atlanta Federal Reserve model which updates weekly is now forecasting 1Q GDP increasing at an annualised rate of 1.8 per cent. At the start of March it was churning out numbers around 3.5 per cent. Sell Europe?

High expectations for European stocks in 2018 have not been met. Eurozone and UK business confidence data due out next week will either inflame or soothe concerns that the region’s economic momentum may be starting to wane.

Morgan Stanley equity strategists say Europe is now seeing record outflows versus the US, and even the popularity of French President Emmanual Macron - elected last year with a strong mandate to reform rigid labour markets - has now hit an all-time low in the polls.

The French CAC-40 share index is now down five per cent from when Macron won power last May, though that is still better than the near seven per cent the pan-European Stoxx 600 has lost. — Reuters