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.

Brexit May Day

With less than 80 days to go until Britain leaves the European Union, the path to Brexit winds to a critical crossroads on Tuesday when MPs vote on Prime Minister Theresa May’s withdrawal deal.

The agreement, which May and EU leaders say cannot be renegotiated and is the only one available, will almost certainly be rejected.

If so, uncertainty, paralysis and the likelihood of a disorderly ‘no deal’ Brexit will rise.

Volatility is nothing new to sterling, Friday being a microcosm of how the FX market is playing Brexit.

A media report that Britain’s departure could be delayed sent the pound shooting up nearly a cent to its highest since November 29, then minutes later May’s spokeswoman ruled out any delay and the pound fell right back again.

One- month implied options volatility in sterling is much higher than euro vol, and that’s unlikely to change any time soon.

All eyes on the big vote in Parliament on Tuesday and for sterling, moves below US$ 1.25 or above US$1.30 are both on the table.

Earn, baby, earn

Global stock markets have suffered in recent weeks on fears that economic growth — and company earnings — are on the decline.

Upcoming US company earnings will test this view.

Big US hitters due to issue fourthquarter results next week include Micron Technology, Netflix, and major Wall Street banks Citi, JPMorgan and Wells Fargo.

Money has started trickling back into equity funds this week thanks to Powell’s dovish comments.

But earnings expectations remain low nevertheless: I/B/E/S Refinitive data indicates S&P 500 earnings will have grown 14.5 per cent in the fourth quarter of 2018, the slowest since 3Q17, sharply lower than the 28.4 per cent rise in 3Q18 and almost flat year-onyear.

And confidence in Europe is even lower — earnings-per-share (EPS) for companies is expected to have grown 7.1 per cent in 4Q, half levels seen in 3Q and 4Q17.

ForecastsasrecentlyasNovember were for 14 per cent growth but a spate of nasty macro- economic surprises has caused analysts to downgrade their view.

Some strategists do reckon markets have got ahead of themselves by pricing in a growth slowdown or recession.

Company results could show who’s getting it right.

Shipping news

China and the US have held their first face-to-face talks since the two world powers agreed a 90-day trade war truce.

Described as “extensive”, the talks have helped cheer up global equity investors.

But risk aversion could rear its head again should hard data from China show what damage has been done to the economy by the initial tariff rounds.

In particular focus will be Chinese export growth.

Analysts expect that to have cooled for a second month in December as front-loading of USbound cargoes faded.

Poor data will be another incentive for Beijing to be more accommodative with fiscal and monetary policies.

It has already engaged a reserve ratio cut for banks which should pump the equivalent of $115 billion into the economy.

What remains to be seen is how accommodative it might be with US demands on trade. — Reuters