Take Five: Shall we try again? World markets themes for the week ahead
(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.
1/ THIRD TIME LUCKY? MAY-BE
If at first you don’t succeed, try and try again. And again and again. The UK Parliament has voted to extend the March 29 exit date but Prime Minister Theresa May is still hoping to railroad lawmakers into approving the EU divorce deal she’s negotiated. The unpopular agreement has already been heavily rejected twice but prospects of a long delay or even another referendum that may reverse Brexit could well swing eurosceptic Tories over to her side. So a third “meaningful” vote, dubbed MV3, is planned for the coming week. If that fails, well, MV4 is already being touted.
There is, of course, no guarantee an exasperated EU will play ball — all 27 remaining members have to agree the extension. And there are doubts a three-month delay will break the deadlock. If MV3 fails, the EU’s March 21 summit will be key, first to see if it agrees an extension and second, whether it presses Britain for a delay of one year or more.
With the parliamentary votes, meaningful or otherwise, grabbing the limelight, there’s probably not much the Bank of England can add at its meeting on March 21. It’s already said no-deal Brexit is a bad idea; any clarity on its policy intentions is likely only after the manner and timing of Brexit becomes evident.
(GRAPHIC: No-deal” Brexit probabilities – tmsnrt.rs/2Ua88yG)
2/ FIGURE IT OUT BOEING
President Trump has told Boeing to “figure it out fast”. That’s probably good advice for the company, a long-standing stock market darling that’s lost almost $28 billion, or 13 percent of its value, since the March 10 Ethiopian Airlines’ crash.
The disaster has prompted country after country into grounding Boeing’s fleet of 737 MAX aircraft – the model involved in the Ethiopian crash and another recent one in Indonesia. Possible links between the accidents have rocked the aviation industry, scared passengers worldwide, and left the company scrambling to prove the safety of its best-selling model that was intended to be the standard for decades. Before the crash, Boeing was the seventh most valued stock on the Dow Jones, but it’s fallen to 14th. Its shares hit record highs just a week before the crash, having risen a stunning 52 percent since the end of December. They are still up almost 20 percent year-to-date.
So what’s next? Moody’s reckons Boeing will overcome the near-term challenges. The question for investors is whether the share price slide takes into account the damage to the bottom line and potential legal exposure. Analysts will be assessing the possible fallout; chances are, some earnings downgrades will start coming through.
– Boeing faces crisis with worldwide grounding of 737 MAX jetliners- Boeing 737 MAX 8 groundings spread around the world- Boeing shares cheaper, but are they a buy?
(GRAPHIC: Boeing valuation – tmsnrt.rs/2O6oKWa)
3/ PAUSE PERFECT
U.S. unemployment is plumbing its lowest level in half a century, wages are ticking up but the Federal Reserve, meeting on Tuesday and Wednesday, is not poised to snatch away the proverbial punch bowl.
On Wall Street at least, the Fed’s dovish 2019 conversion is paying off: The S&P 500 is up about 6 percent since the Fed’s Jan 30 meeting signalled it was putting in abeyance a tightening policy that began in 2015.
Labor shortages notwithstanding, the slowing economy is keeping prices in check, giving the central bank leeway to stand pat on interest rates after hiking four times in 2018. Compared to the Fed’s 2 percent inflation target, producer inflation was up 1.9 percent in the year to February, while consumer inflation rose just 1.5 percent to its smallest annual gain in 2-1/2 year.
The next reading of the Fed’s preferred inflation measure, the core personal consumption expenditures price index, is due on March 29. But that gauge rose 1.9 percent year-year in December.
Already, money markets are building in some easing in 2020. By then, the Fed should have completed a review of how it manages its policy mandate of keeping prices stable and employment high.
(GRAPHIC: U.S. price and wage growth – tmsnrt.rs/2O4K4ex)
4/ SURPRISES GOOD AND BAD
It’s been a rough old time for Europe’s economy, with momentum steadily waning last year even as the United States powered ahead. Growth warnings issued by the OECD and the European Central Bank have rattled investors further this year, as they try to assess what kind of toll the euro zone has suffered from trade wars, Brexit and Italian debt concerns.
But finally! There are some signs the nasty surprises are fading. Citi’s well-known economic surprise index – a gauge showing how much economists have been over- or underestimating economic performance compared to what indicators actually deliver – now shows a cross-over between the euro zone and the United States.
That means negative surprises from economic indicators in the world’s top economy have worsened dramatically in recent weeks. Euro zone data misses, meanwhile have been less bad than previously.
Whether this run continues or not will become evident in coming days. First up on Tuesday, comes Germany’s ZEW economic index. Purchasing manager indexes, a crucial forward-looking gauge, will be released on Friday from the United States, Euro zone and Japan.
(GRAPHIC: Macro surprises U.S. versus Euro zone – tmsnrt.rs/2Fb2JT4)
5/ SEARCHING FOR MEANING
To many economists, the Bank of Japan’s forecasts have long seemed to be on the optimistic side. The key difference in views was the global outlook. Well, the world economy is slowing down and even if Japanese companies are awash with cash and no major central bank runs a looser policy than the BOJ, the No.3 economy is still feeling the pinch.
What’s worse, inflation encounters less resistance on the downside than it does on the upside. So the BOJ is well and truly in a corner. There was little it could do at its March meeting save keeping policy unchanged and tempering its economic outlook predictions. But might the BOJ be forced to resort to further policy easing? That question is being asked of the ECB too, while central banks elsewhere — from Australia to the United States — may also have to cut rates.
Upcoming data on Japan’s trade and price growth will help investors determine what happens next. Policymakers will also be hoping for a resolution soon to the U.S.-China trade dispute. The data could intensify the debate on whether the BOJ’s dogged adherence to a 2 percent inflation target means anything – finance minister Taro Aso predicted “things could go wrong” if the BOJ hung on to that goal.
(GRAPHIC: Japan inflation – tmsnrt.rs/2FbxTJT)
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