The week ahead: five big investment themes
Five big themes likely to dominate thinking of investors and traders this week
1. Taken by surprise
Investors piled into safe-haven assets after US cruise missiles rained down on a Syrian airbase, following a policy shift by US President Donald Trump. Analysts were quick to interpret the strike, in response to a chemical weapons attack blamed on Syria, as a signal to Russia and to other countries such as China, North Korea and Iran. Markets largely reversed course after US officials said the airstrike was a “one-off”. Friday’s events have put investors on notice that geopolitics is likely to remain a major theme for markets this year. But they will also remain wary of assuming they know what Trump is thinking.
2. Bitter division
Turkey holds a referendum on April 17 on replacing the country’s parliamentary system with an executive US-style presidency for Tayyip Erdogan. The result still looks like a coin toss but is guaranteed to trigger major moves in the lira and Turkey’s stock and bond markets whichever way it goes. The referendum has bitterly divided the country. Opponents fear increasing authoritarianism from Erdogan, a leader they see as bent on eroding modern Turkey’s democracy and secular foundations, while his campaign, in which he and government ministers have dominated the airwaves with multiple speeches daily, has strongly played the nationalist card to woo voters at home and abroad. The lira has lost almost a quarter of its value over the last year and analysts are predicting another dive if Erdogan wins and a jump if he doesn’t.
3. Goldilocks in Europe?
JPMorgan, Citigroup and Wells Fargo will on Thursday kick-start a busy few weeks of corporate results and optimism is high. A synchronized uptick in profit forecasts as well as in GDP across every major market in the world is under way for the first time since 2010. Stock market valuations, running above historical averages, are already reflecting some of the upbeat sentiment so the bar for disappointments, particularly in the United States, is low. In Europe, the mood is even perkier thanks to relatively cheaper valuations, a definitive improvement in the macroeconomic backdrop and a still-accommodative central bank.
4. Hot cross Bunds
What better place to keep money safe from potential geopolitical shocks than German debt? Germany sells its benchmark 10-year bonds, one of the world’s most liquid financial instruments, in the coming week. But, after failed auctions of both two- and five-year debt in recent weeks, the auspices are not the best. Germany’s 10-year borrowing costs have halved since mid-March as yields dropped from a 0.509% peak to 0.22%. While this would suggest buying interest, this is actually much more an adjustment in monetary policy expectations. Last month, all the talk was about how the European Central Bank was planning to “normalise” its monetary policy stance, aided and abetted by some fighting talk from Bundesbank chief Jens Weidmann. But those expectations have cooled after recent signals from European policymakers and doubts over the “Trumpflation” trade. If the auction attracts fewer bids than the 3 billion euros on offer (and the small amount would tend to make this less likely) it would be the first failed auction of German 10-year bonds since September.
5. China rising
Whatever presidents Donald Trump and Xi Jinping had to say about trade at their first summit, growth in Chinese imports is expected to have remained strong in March. Trade and inflation data are due in the coming week as part of a suite of indicators expected to show solid growth in the world’s second largest economy. Inflation is expected to remain mild, with consumer prices up 1.0% year-on-year after slowing to 0.8% in the previous month.
Read: China March data seen showing solid growth
(Reporting by Abhinav Ramnarayan, Marc Jones, Vikram Subhedar and Nigel Stephenson; editing by John Stonestreet)