World markets themes for the week ahead

LONDON: Following are big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them. Price of peace

US President Donald Trump and North Korea’s Kim Jong Un are due to meet for a historic summit in Singapore on June 12. In an ideal scenario, Kim would agree to abandon all of the North’s nuclear capabilities in return for Trump easing sanctions on his economy.

But things are rarely ideal, and they are unlikely to be simple, either. Complete, verifiable and irreversible dismantlement - or CVID as it is known in nuclear circles - almost certainly isn’t what Kim has in mind, so whether Trump shows any flexibility will be crucial.

Financial markets barely reacted when the two were trading bombastic barbs last year but investors still aren’t sure how to trade Trump’s new softer side or Kim’s readiness to trade his nuclear arsenal for recognition and aid.

There is a whole multitude of options, and assigning probabilities to scenarios as extreme as nuclear Armageddon or lasting peace on the Korean peninsula is no easy task.

Markets will also be having to digest the outcome of the likely arguments over trade and security between Trump and leaders of the other G7 nations at a weekend summit in Canada. World Cup binge

The biggest sporting event on the planet - the soccer World Cup - starts in Russia on June 14. And as much as bookmakers agree that either Germany and Brazil will lift the famous trophy, financial analysts are equally unified on another matter: large amounts of beer will be consumed.

Morgan Stanley found that two to three per cent more beer gets drunk in a host country during a World Cup year when they looked at the four previous hosts - France, Germany, South Africa and Brazil.

Carlsberg, the market leader in Russia, and Budweiser maker ABInBev, an official sponsor, could therefore be the top scorers.

ABInBev has also estimated that its sales in soccer hotbeds Brazil and Argentina will go up by 0.5 to 1 percentage points and though it’s difficult to attribute it to football fever with certainty, both Heineken and ABInBev outperformed other brewers during the last World Cup in 2014. Fed up... Again

The world’s most influential central bank, the Federal Reserve, looks all set to raise US interest rates on Wednesday for a second time this year and the seventh since December 2015.

Strong jobs data last week and signs that inflation is nearing the two per cent sweetspot mean Fed chairman Jerome Powell and his Open Market Committee are in a good position to lift rates again despite the angst over Trump’s global trade tariffs.

Markets are fully priced for the move so what could the effects be? According to a recent poll by Reuters, the average 30-year mortgage rate will rise to 4.6 per cent by year-end and then touch five per cent by end-2019. That will mean loan affordability is getting steadily worse.

Emerging markets who borrow heavily in dollars won’t enjoy it much either if it pushes up the greenback again. A number of key countries in the EM complex are already under intense pressure and higher US rates won’t help at all. Bye bye bond buying

European Central Bank ratesetters have put the cat among the pigeons by suggesting they will look past Italy’s political problems when they meet on Thursday and push on with discussions to close their 2.55 trillion euro bond-buying scheme.

It has made it one of the most keenly anticipated meetings for a long time. If the bond buying ends, rate hikes can’t be far behind. Investors are starting to price in the summer of 2019 for a possible first move, with some even suggesting the bank’s -0.4 per cent deposit rate could be back up to zero by the end of next year. — Reuters