INSUBCONTINENT EXCLUSIVE:
Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to
them.
Yield curveballsWhich is it - growth or gloom With 10-year US bond yields below 3-month T-bill rates for the first time in more than a
decade, recession fears are swirling
After all, an inverted yield curve, when longer-dated yields drop below shorter maturities, have proved to be fairly reliable predictors of
US recessions in the past
As a result some investors are busy putting cash behind bets the Fed is gearing up for rate cuts.
But there are many who scoff - they point
to a world economy chugging along at a decent clip, dovish central banks and company earnings that are still growing, albeit more slowly
So while Treasury yields are down 30 basis points this quarter, world stocks are up more than 10 percent
Recession skeptics may also note that US equities are not far off record highs and credit spreads have retraced most of their December
losses.
Also, while past recession discussions have focused on inversions of the 2-year/10-year US curve, that hasn’t reacted so far
Fed policymakers too, such as voting member John Williams, say they are not worried about recession this year or the next
Others such as James Bullard seem to be endorsing the “this time is different” argument, hinting that the curve’s predictive power has
weakened.
But policymakers around the world have already taken heed
The ECB has hinted at further rate cut delays and at tiering interest rates to help banks; other central banks, from New Zealand to Canada,
are hinting at rate cuts ahead.
The end of the roadNo
Parliament’s cold response to Prime Minister Theresa May’s Brexit deal so far means the manner of Britain’s exit from the European
Union - originally scheduled for March 29 - is unknown.
Brussels has let Britain delay its departure while May battled to find a way forward
but there is little enthusiasm in parliament or the population even for the stripped-down version of May’s twice-defeated deal
But lawmakers have also given the thumbs-down to a series of other amendments, including revoking Brexit, delaying it further or holding
another referendum.
Dismayed investors have been avoiding the pound but the resulting shortage in trading volumes just exacerbates price
The question now is whether the most hardline Conservative euroskeptics and Northern Ireland’s DUP, the party propping up May’s
government, can ever be convinced to back an exit deal before the new April 12 deadline.
If the withdrawal agreement does somehow scrape
through, sterling would likely surge above $1.35
For the time being though, the bleak, if unlikely, alternative scenario - a chaotic no-deal departure - persists.
Options markets aren’t
The price investors are willing to pay for one-month sterling protection - insurance against sterling falls - is at the highest since the
2016 referendum vote.
Workin’ for a livin’US factory job growth was its weakest in February since the summer of 2017 but still managed
to extend the streak of monthly gains to 19, the longest in nearly a quarter century
If, as expected, Friday’s March payrolls report makes it 20 in a row – economists polled by Reuters predict a 10,000 increase - it would
mark the longest uninterrupted run of manufacturing employment expansion in a generation, matching the run from January 1983 through August
1984.
But while comparable in length, the current manufacturing renaissance pales in terms of total jobs created
Back then, US factories added 1.34 million workers, more than three times the 417,000 new jobs since the current streak began in August
2017.
For early clues on the jobs data, cast an eye on Monday’s ISM Manufacturing Index
Its employment component is closely correlated with the Labor Department’s manufacturing payrolls series
ISM’s February reading on factory employment, at 52.3, was the weakest in more than two years
Should it drop below 50, the level separating expansion from contraction in the ISM series, it could signal an end to manufacturing
The last time ISM had a sub-50 print was September 2016
That month, US factories cut 3,000 jobs.
Deal with itA month has passed since the United States and China missed an initial deadline to
The first face-to-face meetings between the two sides since that deadline were apparently “constructive” and “productive”; now
Chinese Vice Premier Liu He is to travel to Washington for further talks.
In the meantime though, tariffs on Chinese goods worth $250
billion are in play and that is hurting - China as well as its Asian neighbors who are linked to it through complex supply chains
March Purchasing Managers Indexes are expected to show a further deterioration in sentiment across the region and another source of pressure
is the worry of a recession in the United States.
The one thing preventing panic is the hope Beijing will provide enough stimulus to offset
Central bankers around Asia have started hinting at interest rate cuts, relieved at the end of the Fed’s policy-tightening campaign
But the upcoming activity data might show how soon they need to act.
No thanksgiving for this TurkeyLast year’s lira crisis tipped Turkey
into a painful recession, ended its credit-fueled economic boom and complicated President Tayyip Erdogan’s task of selling his economic
They are headed to the ballot box on Sunday for the first time since last year’s currency meltdown.
Polls suggest Erdogan could lose
Ankara, the city from which he has ruled Turkey with an increasingly iron grip since 2003
His AK Party could face a tough race in Istanbul, where Erdogan was once mayor
But policymakers’ efforts shore up the currency before the election have run into trouble and moves to curb offshore lira supply has
pushed investors into selling Turkish stocks and bonds.
The question now is how quickly policymakers will normalize their approach to
And even if they do, will pressure on the lira ease up and can they win back the trust of investors, some of whom will have taken losses
from the recent episode For an economy that’s already reeling how much damage have these unorthodox measures inflicted And finally, will
the stress percolate to European banks active in Turkey BBVA, Unicredit, ING, HSBC and BNP Paribas all have varying degrees of exposure.
