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 I word

As the US yield curve makes up its mind whether to invert or not, investors seeking reassurance that we are in a Goldilocks era of noninflationary growth will get to scour two monthly price gauges.

On Wednesday, the Labor Department is expected to report that its March Consumer Price Index rose 0.3 per cent on the month and 1.8 per cent over the year - a reading that would reinforce subdued underlying inflation and validate the Fed’s almost about-face after four hikes last year.

CPI - a proxy for overall inflation that factors into cost of living adjustments for Social Security - rose 1.5 per cent year to February, the smallest increase since September 2016.

The latest reading of the Fed’s favorite inflation measure rose 1.8 per cent in the year to January, below its two per cent target.

Fed officials have started alluding to a new economic reality of slowish growth and little upward price pressure.

Even as wages creep higher, improved productivity curbs firms’ costs.

Minutes of the March Fed policy meeting, to be released on Wednesday, will be cross checked for references to the new “patient” approach and “muted” inflation. The March producer price index, a glimpse of pipeline price pressures, is scheduled for Thursday. Watch your China

An unexpected recovery in China factory activity surveys offered investors a glimmer of hope the stimulus injected in one of the world’s major growth engines may be yielding results.

Trade data due out on Friday could provide the next clue that could help investors regain confidence as they gauge whether the slowdown is bottoming out.

That said, the recovery remains feeble and analysts believe it is still highly-dependent on how the trade negotiations with Washington go.

Markets took some hope from an announcement by US President Donald Trump on Thursday that Washington and Beijing could announce a trade deal within four weeks while Chinese President Xi Jinping was reported as saying progress was being made.

But Trump also warned Beijing it would be difficult to allow trade to continue without a pact.

Many believe the Chinese economy may still need more stimulus either way.

Looking at the pattern of past decisions by the People’s Bank of China, a decision to cut bank reserve requirements may be announced by mid-April, economists say. The long goodbye

After British Prime Minister Theresa May’s request to the European Council to delay Brexit until up to June 30, focus now shifts to a meeting where EU leaders will discuss a proposal to offer Britain a flexible extension of up to a year.

After the British parliament failed to approve a withdrawal agreement, May started talks with Labour leader Jeremy Corbyn in the hope of breaking the Brexit deadlock, but markets are not getting too excited about it.

While one-month risk reversals for the pound, a gauge of demand for the British currency in the derivatives market, have rebounded from a 2-1/2 year low hit last month, they still remained far below levels seen earlier this year, indicating overall sentiment remained bearish.

Implied volatility measures also indicated caution with one-month gauges for the pound remaining elevated despite a dip compared to the euro and the Japanese yen. — Reuters