LONDON, June 9 Following are five big themes
likely to dominate thinking of investors and traders in the
coming week and the Reuters stories related to them.
1/ FED HIKE SEEN CERTAIN, BUT THEN WHAT?
The U.S. Federal Reserve looks almost certain to raise
interest rates for the second time this year, by 25 basis points
to 1 to 1.25 percent. What concerns investors, though, is what
happens next. When Donald Trump won last November's presidential
election, U.S. stocks and Treasury yields soared and the dollar
strengthened on expectations that extraordinary fiscal stimulus
would supercharge an economy already on the mend, pushing up
inflation and giving the central bank the space to raise rates.
However, low expectations for growth and inflation and battered
faith in Trump's ability to enact the promised measures has
taken a toll on that trade. The dollar is back where it was
before the Nov. 9 election, 10-year Treasury yields are pinned
well below 2.30 percent. What does that mean for interest rates
– will the Fed react by slowing the pace of rate increases?
Investors will be hunting for clues to whether this may herald a
slower pace of rate hikes.
* Conviction starts to fade for rate hikes after June:
* Trump pushes infrastructure plan as Russia probe heats up.
* U.S. services, factory data point to modest economic
2/ NOT SO STRONG, AND NOT SO STABLE
"Strong and stable" was the mantra UK Prime Minister Theresa
May hoped would win over the country and sweep her to a
landslide election victory. But it failed for her, and it
doesn't look like it can be applied to sterling either. Sterling
volatility has usually been lower than euro volatility. But the
political chaos in Britain - some say May is unlikely to survive
for long, and another snap election later this year may be on
the cards - comes just as the Brexit negotiations formally get
under way. Which comes just as the economy is slowing. According
to the OECD, UK growth next year will be the lowest of all 32
countries in its latest global outlook report bar one. What's
more, Britain will be the only one of those 32 countries to post
slowing growth four years in a row from 2014 to 2018. So
sterling looks set for a rockier ride than otherwise might have
been expected, although the expected volatility probably won't
be as bad as that seen after last year's Brexit vote. Some
analysts say the pound could fall back to $1.20 before
recovering. "Not so strong, and not so stable".
* COLUMN-"Strong and stable"? Could be a struggle for
* Britain's pound sinks after election shock, lifting main
* May to try to form government after UK election debacle,
uncertainty over Brexit talks
* Graphic: Sterling spot and implied volatility
3/ BANG TO REITS
Real estate investment trusts (REITs), with their holdings
of London office space, were the worst-performing stocks on the
FTSE all-share the day after a stunning election upset – an
indication traders were dumping stocks considered most
vulnerable to Brexit. But what happens if Brexit turns out
"softer" than appeared likely before the election, as many in
markets now suggest? The pressure on REITs, which hasn’t really
eased since last June's Brexit referendum, could begin to lift.
That makes some hefty assumptions about May’s negotiating
stance, though, and some more bearish observers reckon more
uncertainty could be in store.
* UK house prices show weakest growth in nine months - RICS
* Sovereign investors raise property holdings, wary of UK on
4/ GREEK BOOMERANG
Greece, the euro zone’s finance ministers and the IMF meet
in Luxembourg on June 15 knowing that another Greek default may
be on the cards in July if it doesn’t get another shot of aid
money. There are still differences of view on what needs to be
done to make the country’s debt - 180 percent of gross domestic
product - seem sustainable. The Greeks want debt relief now,
Germany and others want to wait until next year to ensure Athens
stays in line. Then there is the big question for bond markets.
Would the now-traditional fudge deal that kicks the can down the
road be enough to get the European Central Bank buying Greek
debt? If so, Greek could be lining up its first debt sale since
a brief return to markets in 2014.
* EU's Dijsselbloem expects deal on Greek bailout next week-
* IMF's Lagarde offers euro zone Greek debt compromise,
* Greece targeting sub-5 percent yields for market return
5/ GULF RIPPLES
A spat between Qatar and a bloc of Arab states led by Saudi
Arabia has caused ructions on local financial markets that might
deepen in the coming week and ripple outwards should tensions
escalate. Qatari stocks are down 7 percent and its riyal has
fallen in one-year forward markets to the lowest since end-2015
. Some big Qatari companies have come under cyber
attack, the latest being satellite TV channel Al Jazeera. Risk
insurance costs across the region have surged and the weaker
Gulf states, Bahrain and Oman, may suffer peg pressure, too. But
Turkish President Tayyip Erdogan has upped the stakes by giving
the green light to Turkish troop deployment in Qatar. Turkish
warplanes and ships may also be sent, the newspaper Hurriyet
said. A supportive global backdrop has so far protected Turkish
markets, but that may change if the conflict turns violent.
* Turkey's Erdogan approves troop deployment to Qatar
* Qatar could defend currency for years, its balance sheet
* Al-Jazeera TV says it is combating hack
(Reporting by Abhinav Ramnarayan, Jamie McGeever, Helen Reid,
Marc Jones and Sujata Rao, compiled by Nigel Stephenson, editing
by Larry King)