Weekly Market Reports

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. Asia’s delicate duo

Contagion is unavoidable when you are a high interest-rate economy that runs a trade deficit and needs foreign capital to balance its books. That is what India and Indonesia, the two Asian members of the ‘fragile five’ emerging markets, have rediscovered.

Both have been swept up in recent waves of emerging market selling, never mind their strong growth, appealing real yields, and sound policymaking.

India’s rupee is hitting record lows while Indonesia’s rupiah is approaching levels last seen in the Asian financial crisis 20 years ago. But while Indian authorities seem content to merely smooth the rupee’s fall, Indonesia has resorted to interventions, import restrictions and rate rises.

A crucial test now looms for these currencies, and to a lesser extent, for Asian peers — if the Trump administration proceeds with a fresh set of tariffs on US$200 billion of Chinese imports, eliciting retaliation from Beijing. Who wants to be an em central banker?

It’s a tough job, but someone’s got to do it. Markets’ eyes are on a host of central banks to see if they can calm down currency markets, above all in Turkey.

The central bank is expected to finally hike interest rates on September 13 but with a full-blown currency crisis on and near-18 per cent inflation, the move may come too late to avert a hard landing.

In Argentina, at least, draconian rate rises to 60 per cent — alongside heavy currency interventions — have not prevented the peso from tumbling 50 per cent this year.

It’s hard to see what else the central bank there can do when it meets on Tuesday.

Russia’s position seems enviable in comparison - healthy currency reserves and a balance of payments surplus.

But the possibility of growthcrimping Western sanctions being extended has put foreign investors to flight and driven the rouble to 2-1/2year lows. Prime Minister Dmitry Medvedev is clearly trying to head off a rate rise at Friday’s central bank meeting but inflation-fighting Governor Elvira Nabiullina has already signaled policy tightening. In any case, Russia’s three-year long rate-cutting cycle looks to be at an end. Still leader of the free world

It’s been hard to ignore how the US has been pulling ahead of most of the rest of the world in terms of economic growth. Upcoming data is likely to reinforce that theme. Solid performances are expected for retail sales, consumer inflation and rental prices for August.

September 14 retail sales data should show strong, broad based, momentum, with online as well as brick-and-mortar retailers turning in good performances.

Excluding the auto sector, retailers are expected to show sales growth of 0.5 per cent versus 0.6 per cent in July.

Core consumer inflation meanwhile, out September 13, should hold unchanged at last month’s 0.2 per cent increase.

A key inflation component, non-farm rents, have stabilized following a decline within the last year. Strength in the US labour sector and the tailwind benefits of personal income tax cuts are being cited by some economists for the current and sustained strength, as is an upswing of US industrial activity. ECB and BoE: Waiting games

Thursday’s meetings at the European Central Bank (ECB) and Bank of England (BoE) should be a lot less exciting than those in Turkey or Russia.

The ECB is likely to firm up its decision to halve monthly asset purchases come October, bringing into sight the end of its 2.6 trillioneuro stimulus program. But to allow itself some flexibility, the ECB will likely maintain that it expects to, rather than will, exit stimulus at the end of 2018. — Reuters