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.

The art of war

As US tariffs on Chinese imports kick in, President Donald Trump is threatening to tax goods worth US$500 billion — roughly the value of all US imports from China in 2017.

What could Beijing do to ease the impact on its economy? In theory, it could ease policy. It has also subtly hinted at using yuan depreciation as a retaliatory tool, by allowing the currency to post its biggest monthly loss on record in June.

Though capital outflows are a risk. Upcoming data will provide a crucial insight into China’s economy - the weekend brings the latest FX reserves picture; consumer and factory inflation figures emerge on July 10; trade data due July 13 will show if trade angst had already hit exports and imports in June.

All that will set markets up for 2Q GDP due the following week. Tensions with Washington may already have slowed economic growth, Reuters polls predict.

Say the words you long to hear

The Fed is pressing ahead with raising interest rates, global financial conditions are tightening and investors are nervous about the global economy.

Emerging markets are under the cosh and bond yield curves are flattening - the US yield curve is less than 30 basis points from inversion, the signal that recession is coming.

This is the backdrop to a series of speeches next week from some of the world’s most powerful central bankers — Bank of Japan governor Kuroda, European Central Bank chief Draghi, Bank of England boss Carney and Bank of Canada’s Poloz all take the stand. The BoC will likely also raise interest rates next week.

Here’s the balance they will try to strike: signal an exit from crisisera stimulus but not so fast that growth and investor confidence will plummet.

It won’t be easy. As it stands, the current economic expansion and bull market are very long in the tooth. Fed tightening alone could be enough to end them both. Crude threats

Coming days may being more volatility to oil markets too. They have already been on a rollercoaster, rising almost to US$80 per barrel after output cuts by the Organisation of Petroleum Exporting Countries (OPEC) and allies.

OPEC has agreed to ease output curbs but prices are receiving fresh impetus from Washington’s new sanctions against Tehran.

Those in turn have led Iran’s Revolutionary Guards to threaten a blockade of the Strait of Hormuz, the world’s most important oil artery through which a fifth of the world’s oil consumption passes.

Tensions are running high, with the US Navy standing ready to ensure free navigation through the channel.

High oil prices are wiping out any benefits the US economy might enjoy from Trump’s tax cuts.

But while he has lashed out at the cartel and urged it to raise production, he is also pressuring governments to stop Iranian purchases. Such rhetoric may push oil prices higher still. As will any outbreak of hostilities in Hormuz.

May way or the highway

Britain’s markets are in for another bumpy ride this coming week.

They will be digesting the outcome of a crunch Brexit showdown at the government’s country retreat on Friday. Resignations, rebellions and coup plots have all been rumored if Prime Minister Theresa May doesn’t back a clean break from the EU.

At the same time, British industrial giants are sounding shrill warnings of mass exodus if EU trade ties are lost.

May will then get a visit from Germany’s Angela Merkel on Tuesday — assuming she hasn’t been ousted by then. Merkel’s visit is part of a Western Balkans summit where, ironically, the main agenda is EU integration. But she will make time for a Brexit powwow with May. — Reuters