LONDON (Reuters) - Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them.
As U.S. tariffs on Chinese imports kick in, President Donald Trump is threatening to tax goods worth $500 billion — roughly the value of all U.S. imports from China in 2017.
What could Beijing do to ease the impact on its economy? In theory, it could ease policy. It has also subtly hinted at using yuan depreciation as a retaliatory tool, by allowing the currency to post its biggest monthly loss on record in June.
Though capital outflows are a risk. Upcoming data will provide a crucial insight into China’s economy - the weekend brings the latest FX reserves picture; consumer and factory inflation figures emerge on July 10; trade data due July 13 will show if trade angst had already hit exports and imports in June. All that will set markets up for Q2 GDP due the following week. Tensions with Washington may already have slowed economic growth, Reuters polls predict.
China to be less interventionist on yuan than in 2015 - sources
EXPLAINER-How trade war with U.S. can hurt growth in China and beyond
China Q2 economic growth seen slowing as trade war looms
For graphic on trade tensions in China's stock, currency markets click reut.rs/2KTfIcH
The Fed is pressing ahead with raising interest rates, global financial conditions are tightening and investors are nervous about the global economy. Emerging markets are under the cosh and bond yield curves are flattening - the U.S. yield curve is less than 30 basis points from inversion, the signal that recession is coming.
This is the backdrop to a series of speeches next week from some of the world’s most powerful central bankers — Bank of Japan governor Kuroda, European Central Bank chief Draghi, Bank of England boss Carney and Bank of Canada’s Poloz all take the stand. The BoC will likely also raise interest rates next week.
Here’s the balance they will try to strike: signal an exit from crisis-era stimulus but not so fast that growth and investor confidence will plummet. It won’t be easy. As it stands, the current economic expansion and bull market are very long in the tooth. Fed tightening alone could be enough to end them both.
COLUMN-Solo Fed can puncture global growth all on its own
COLUMN-For markets, 2018 mid-point looks more like tipping point
Bank of England’s Carney boosts expectations for August rate hike
For graphic on U.S. Yield Curve click reut.rs/2zVhQyJ
Amid trade wars signs of slowing economic growth, world markets remain relatively robust. Bumper U.S. company earning are part of the reason. Thanks to tax-cut tailwinds, Q1 earnings growth clocked in at 26.6 percent and the second quarter, starting next week, should moderate only slightly, to 20.7 percent.
However, the season is being clouded by trade tensions and their impact on corporate profits. So analysts will closely scrutinize outlook statements to see whether to adjust numbers for the rest of 2018. Right now, 23.4 percent earnings growth is forecast for the third quarter and 20.2 percent for the fourth.
U.S. quarterly earnings graphic: tmsnrt.rs/2MrffP3
Financials stocks won big from the tax cuts — their Q1 bottom lines were possibly fattened by as much as $5 billion, many estimate. So eyes will be on Wells Fargo, Citi and JP Morgan reports on July 13. Thomson Reuters I/B/E/S forecast banks’ Q2 growth at 22 percent.
But numbers are seen less toppy next year, slimming to 7.3 percent in the first quarter and just over ten percent for the three subsequent.
U.S. stock valuations get trickier as trade tensions rise:
U.S. tech, banks are big winners from lower taxes in first quarter
For graphic on S&P500 earnings Q2 click reut.rs/2IWAdDf
Britain’s markets are in for another bumpy ride next week.
They will be digesting the outcome of a crunch Brexit showdown at the government’s country retreat on Friday. Brexit Secretary David Davis has resigned because he was not willing to be “a reluctant conscript” to Prime Minister Theresa May’s plans to leave the European Union. At the same time, British industrial giants are sounding shrill warnings of mass exodus if EU trade ties are lost.
May will then get a visit from Germany’s Angela Merkel on Tuesday — assuming she hasn’t been ousted by then. Merkel’s visit is part of a Western Balkans summit where, ironically, the main agenda is EU integration. But she will make time for a Brexit powwow with May.
And it’s not just politics. On Tuesday Britain publishes monthly growth estimates for the first time, a move intended to give policymakers more timely information about the economy. The numbers will be released alongside output data for the services, industrial and construction sectors, and trade figures.
No “reluctant conscript”, Brexit minister quits in blow to Britain’s May
Do your Brexit duty, Britain’s May tells her divided government
POLL-Pound to rally after UK leaves EU, say FX strategists
Airbus CEO steps up warning on danger of hard Brexit
For graphic on the fall and rise of sterling since Brexit vote click reut.rs/2MINqmt
Coming days may being more volatility to oil markets too. They have already been on a rollercoaster, rising almost to $80 per barrel after output cuts by the Organization of Petroleum Exporting Countries (OPEC) and allies.
OPEC has agreed to ease output curbs but prices are receiving fresh impetus from Washington’s new sanctions against Tehran. Those in turn have led Iran’s Revolutionary Guards to threaten a blockade of the Strait of Hormuz, the world’s most important oil artery through which a fifth of the world’s oil consumption passes. Tensions are running high, with the U.S. Navy standing ready to ensure free navigation through the channel.
High oil prices are wiping out any benefits the U.S. economy might enjoy from Trump’s tax cuts. But while he has lashed out at the cartel and urged it to raise production, he is also pressuring governments to stop Iranian purchases. Such rhetoric may push oil prices higher still. As will any outbreak of hostilities in Hormuz.
Why Trump is pressing Saudi Arabia to lower oil prices: Kemp
EXPLAINER-The fallout in commodities from the U.S.-China Trade war: what’s at stake
POLL-Supply risks to bolster oil; OPEC unlikely to fill deficit
For graphic on global crude oil supply & demand balance click reut.rs/2IYnqAb
Reporting by Marius Zaharia in Hong Kong; Megan Davies in New York; Karin Strohecker, Marc Jones and Jamie McGeever in London; compiled by Sujata Rao