World markets themes for the week ahead

THE following are big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them. Sell in May?

With cross-asset volatility at record lows, it’s a great backdrop for investors to load up on risk. Reams have been written on the reasons for falling volatility, but logic attributes it first to major central banks’ recent tilt back into dovishness, and second to the global economy’s tepid but steady expansion with few inflation surprises.

So low is cross-asset vol that a gauge compiled by brokerage INTL FcStone stands 3.6 standard deviations below the mean. In other words, it deems that a vol surge has less a 0.02 per cent probability of occurring.

With that, comes the willingness to go for short safe assets such as gold or Treasuries, and on protective hedges such as the VIX. Outstanding shorts on VIX futures have reached record highs, CFTC data shows, surpassing the buildup seen before last February’s ‘Volmageddon’ blowup.

Unsurprisingly, some market watchers advise caution. As Volmageddon showed, vol can spike spectacularly in a quiet market, sometimes driven by just one unexpected data point.

After all, if the old adage holds, some people may be looking to sell in May and go away. Gimme hope

Data - more important than usual these days as markets try to decide whether the green shoots cropping up in some places are the real deal.

Take the eurozone. Growth was faster than expected in the first quarter, after slumping in the second half of 2018.

US and Chinese first-quarter GDP surpassed expectations, too, while the Bank of England has just raised growth forecasts for 2019.

So will upcoming data — US and Chinese trade numbers — surprise to the upside as well? Germany releases industrial orders figures on Tuesday, and Friday brings a raft of British data, including first-quarter GDP.

For sure, one week of brighter data isn’t enough to shift entrenched pessimism. So while Citi’s economic surprise indexes for Europe and US have started ticking higher, they remain in negative territory.

Nor have brighter growth numbers managed to lift German 10-year bond yields much above zero per cent yet. But keep watching that data. Tech talk

Forecast-smashing results from Facebook, Amazon and Apple have laid to rest any short-term worries about the so-called FAANG group of tech titans. Google and Netflix, the other members of the cohort, were less sweet but not disastrous.

Hopes now are that Asian Big Tech will confirm the comeback signals — mid-May is when China’s Baidu, Alibaba and Tencent update us on their earnings.

For MSCI’s global tech index, net earnings revisions are at their strongest in over six months. With 60 per cent of IT companies having reported so far, almost 90 per cent have beaten expectations, according to UBS.

Coming after a string of downgrades before March, that’s a relief.

However, global tech earnings growth is expected to slow, compared with 2018. But after two years of double-digit growth, a pullback may represent a return to normal rather than a worrying drop.

It’s more than likely that growthhungry investors will return to backing big tech. — Reuters