The following are big themes likely to dominate the thinking of investors and traders in the coming week and the Reuters stories related to them.
The month of May
Theresa May stepped into 10 Downing Street in July 2016 with the express aim of taking Britain out of the European Union (EU). She will depart as prime minister this summer having failed in that ambition.
No one can say she didn’t try – after three attempts to get her EU withdrawal bill through parliament, she finally had to admit it was dead in the water.
Speculation about her departure has been rife all month. Now it’s wait and see if her successor will fare any better with the withdrawal deal, or if he or she steers Britain towards a no-deal Brexit.
What’s clear is that risks of crashing out of the EU without a transition period have risen, given the eurosceptic Boris Johnson is favourite to succeed May. The other risk is a new election, and possibly, a hung parliament.
That means sterling could suffer more losses; it has fallen almost three per cent this month against the dollar and euro.
May will remain in charge as the Conservatives elect a new leader. Her last task as prime minister – welcoming US President Donald Trump to Britain – will hopefully be easier than trying to deliver Brexit.
Game of phones
The Sino-US trade war has morphed from a tariff spat into a battle over who controls global tech. Washington has banned US firms from doing business with Chinese telecommunications giant Huawei. Essentially that cripples the company’s ability to make new chips for its future smartphones.
As chipmakers and companies including Panasonic and ARM fell into line behind the US ban and others like Toshiba scrambled to check their exposure, the widespread impact of the move on complex global supply chains is becoming clear.
Accordingly, shares have tumbled worldwide. Among others, the potential loss of business from the Chinese smartphone giant has hit Europe’s AMS and STMicroelectronics.
Taiwan Semiconductor, which Bernstein analysts calculate makes around 11 per cent of revenues from Huawei, sank too.
The Philadelphia semiconductor index, widely seen as a bellwether for world chipmakers, has lost around 18 per cent in just a month since hitting a record high on April 24.
However, some telecoms equipment firms such as Nokia and Ericsson could benefit if the Huawei clampdown diverts business to them.
Trump’s latest claim that Huawei could be part of a trade deal has injected some hope into markets, but unless further talks are announced investors will remain unconvinced.
EM tantrum without the taper?
Markets have a funny way of repeating themselves and exactly six years on from the ‘taper tantrum’, when investors freaked at the sudden realisation the US Fed wanted to end money printing, some are wondering whether something similar is brewing again.
A conviction the US-China trade war will force the Fed to cut interest rates have pushed benchmark government bond yields that drive global borrowing costs to the lowest in years. But just like in 2013, the Fed is flagging something different. It has signalled it may sit on its hands “for some time”.
So if yields do start to spring back up, things could get scary.
Emerging markets in particular have painful memories of the taper tantrum. Economic surprises in the developing world are the most negative now in six years, according to an index compiled by Citi. — Reuters