World markets themes for the week ahead

LONDON: Following are big themes likely to dominate the thinking of investors and traders in the coming week, and the Reuters stories related to them. Oil at US$80

Brent oil hit US$ 80 a barrel - good news for exporters like Saudi Arabia and Russia but less so for importers such as India and especially those with big current account deficits, like Turkey.

The loss of Iranian supply into an already tight market should keep prices elevated for now.

But US$80 has proved a formidable psychological and technical barrier, so staying above that is going to be tricky.

Brent briefly popped above US$80 in May, marking its highest in over three years, but it could not maintain altitude. There’s likely to be a lot of options positions around this big number, and for all you chartists out there, technicals are at play too.

The 61.8 per cent Fibonacci retracement of Brent’s US$ 90 plunge between June 2014 and January 2016, comes in just above US$81.

There’s another barrier to consider: Donald Trump. The US president has complained repeatedly about oil prices, demanding OPEC action to bring them down. And he was doing that when oil was lower than it is today, so another tweetstorm from the White House would be a surprise to pretty much nobody. Bit of a stretch

When the Bank of Japan (BoJ) meets this coming week, it will scrutinise market moves since its July decision to allow bond yields more flexibility around its zero per cent target. There won’t be much to look at, though.

Despite Governor Haruhiko Kuroda’s assurance the BoJ will allow 10-year yields to stretch to around 0.2 per cent, they have been caught in a tight range around 0.1 per cent.

It’s proving difficult to revive a market that has seen liquidity dry up as a result of the central bank’s huge purchases. This in turn means strains on the banking sector will remain in focus. For now, the BoJ may blame sticky yields on a summer lull and prefer to wait for longer before drawing any conclusions.

But policymakers will also have to debate the risks that global trade frictions pose to the export-reliant economy. They’ll notice there was no holiday lull in the rest of the world. Hold on tight

Turkey may have delivered a chunky 625 basis-point interest rate rise but similar fireworks are unlikely at the crop of the central bank’s meetings in emerging markets.

Nevertheless, with inflation and growth worries rising across the developing world and policymakers engaged in a delicate balancing act to calm investors, markets will watch for the sort of signals central bankers send.

Hungary, for instance, is expected to keep interest rates unchanged but its inflation report, also due on September 18, could show price pressures picking up. So it could spell out details of future policy tightening, though the first rate rise is unlikely before end-2019.

South Africa’s rand, which is down 16 per cent this year, looks like it needs the support of higher rates.

But with the economy recently dipping into recession, authorities are unlikely to make the move, choosing to hold fire in case the emerging market turmoil worsens.

Brazil too should hold rates at 6.5 per cent. The real has not been spared by sellers, though, and is down 21 per cent this year. But inflation is running below-target and growth is sluggish.

Political risks ahead of next month’s elections remain high too. All of which suggest the central bank will keep its powder dry. — Reuters