Four big themes are likely to dominate the thinking of investors and traders in the coming week
Go to Original
1. Jumpy over Trump-Xi
US and Chinese presidents Donald Trump and Xi Jinping meet at one of Trump’s resort hotels in Florida next week. The talks will set the tone of the relationship between the world’s two biggest economies for the next few years and will reveal just how hard Trump is likely to play things with China on issues ranging from trade protectionism and currency manipulation to North Korea. Having been scuppered in his attempts to scrap Obamacare, Trump might see this as a good opportunity to show the American people some muscle flexing. He has already fired a few shots on Twitter, saying it will be a “very difficult” meeting and that the US “can no longer have massive trade deficits and job losses.”
2. Back To Basics
Major currency markets are in one of those downbeat moments where no clear trend prevails. The opening salvoes of Donald Trump’s presidency have not delivered the surge many predicted last year for the dollar. The belief in a steady reeling-in of European monetary stimulus that drove the euro higher in the past fortnight has also abated. No-one wants to back the pound through Brexit talks. And it would take a deeper and more longer-lasting correction in equities markets to build any faith in the yen. So possibly, we go back to the start and the higher US yields that fundamentally support the greenback. GDP on Thursday was strong, some Fed officials predict up to three more hikes and another solid non-farm payrolls read on Friday would have the market thinking about some clear signalling for another rise in June. Unless Donald says, or tweets, different…
3. Taper Test
The first stage of the European Central Bank’s slow withdrawal of monetary stimulus next week may throw into sharp relief the have- and have-nots in the bloc’s debt markets. Weaker, so-called peripheral states like Portugal and Italy are seen as most dependent on the trillions of euros the ECB has spent over the past few years to shore up growth and inflation. But some investors worry an era of rock-bottom rates has papered over the cracks for countries which have not delivered the structural reforms needed to put their economies on a steadier footing. When the ECB from Monday trims its monthly bond purchases from 80 billion to 60 billion euros, it will be a major test of confidence in these countries and how they can withstand a return to normal monetary conditions in the future.
4. Onto Q2
The first quarter began with a bang across global equity markets though Europe still lagged its developed market peers. Over the course of the three months, however, two things changed. Firstly, a steady stream of better economic data trumped the fuzzy risks about geopolitics drawing investors back into a stock market trading at valuation discounts to the others. Secondly, banks and mining stocks – the biggest beneficiaries of the reflation rally – gave way to tech, which ends Q1 as the best performing sector in Europe as well as the most expensive on a price-to-earnings basis. Global investor interest in Europe is stirring back to life and the hunt is on to seek out stocks and sectors that stand to benefit the most from a revival in economic growth, inflation and the brightest earnings outlook for the region in seven years.
No comments:
Post a Comment