World markets themes for the week ahead

FOLLOWING are big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them. A (Brexit) reckoning

Prime Minister Theresa May’s long-awaited Brexit deal triggered a wave of ministerial resignations that has rocked her government and financial markets and raised chances of a snap election.

The pound took the hardest beating. Traders who had hung back from big sterling bets for much of 2018 rushed to sell it, fuelling its biggest daily drop against the euro since 2016.

Gilt yields tumbled too and the FTSE index, which usually rises when sterling falls, lost that inverse correlation and closed flat after Thursday’s mayhem.

One-month implied volatility on sterling — basically a gauge of how much traders expect it to swing in a given period — has climbed to over 15 percent.

Not only is that double the volatility of the euro and almost triple yen and Swiss franc levels, it has now entered territory reserved for emerging currencies such as the Brazilian real and Turkish lira.

May might now need to survive a no-confidence vote, possibly on Tuesday.

Even if she does, she has her work cut out to get the unpopular deal through parliament next month. S-h-o-p-p-i-n-g

The biggest shopping day of the year, Black Friday, is almost upon us and, according to Refinitiv, retailers are going to have to discount like crazy because the US Thanksgiving holiday lands on the early side.

This year’s Christmas shopping period kicks off on November 23 but it gets stretched over five weekends, meaning retailers will be forced to plan additional promotions, Refinitiv said.

So the festival which supposedly “turns red ink into black on the ledgers” may make or break fourth quarter results for some firms, Refinitiv warns.

A Reuters/Ipsos poll indicates 38 per cent of American consumers plan to shop that day and of those, 37 per cent will shop mainly online.

Online spending over the 2018 holiday season will grow 14.8 per cent from a year ago, outpacing the 2.7 per cent growth predicted for brick-and-mortar locations, Adobe Analytics estimates.

Black Friday will also focus attention on US retailers’ earnings. These have so far been a mixed bag; Walmart has posted robust sales and raised its full-year outlook, while Nordstrom and JC Penney were less fortunate.

The coming week will bring third quarter results from the likes of Target, Gap, Best Buy and Dollar Tree. Crude awakening?

It’s been a tumultuous six weeks for oil, sliding into a bear market and chalking up its longest losing streak on record, including a seven per cent one-day plunge on November 13.

The bleeding seems to have stopped, but for how long? What’s certain is that any talk of US$100per-barrel oil has ceased.

The savage selloff has taken oil nearly 30 per cent lower since early October.

All else being equal, this should put downward pressure on inflation in the second half of next year, just as the economic cycle is expected to be in the process of rolling over.

Throw in a potential equity downturn following the longest bull run in history, and the scope for higher interest rates across the developed world looks limited.

Central banks may even be contemplating rate cuts by then.

For now, oil markets have steadied, in part thanks to speculation of an OPEC production cut.

But once in a bear market, it’s sometimes very difficult to get out. — Reuters