Take 5: World market themes for the week ahead
Five themes for the week ahead
Let's find out what else might play out for investors globally next week. (Source: Reuters)
Game of phones
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
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 signaled 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. And nearly $4 billion fled EM equities last week, EM equities have dropped around 10 per cent so far this month and the premiums investors demand to hold EM bonds have spiked.
Clearly, many investors are not hanging around to find out what happens next.
Modi-nomics to the test
Modi’s re-election reinforces a global trend of right-wing populists sweeping to victory, from the United States to Brazil and Italy. Energised by his brand of Hindu nationalism, voters gave less weight to his failure to create jobs — a key campaign promise at the last election. In fact, a complex tax reform and a flash demonetization pushed millions out of work.
Credibility issues aside, upcoming growth data will be a reminder that while investors gave Modi a big thumbs up and pushed Indian stocks to record highs, the economy is less cheerful. Corporate earnings have in fact disappointed in the years Modi has been in office. And small businesses, low-income farmers, jobseekers and liquidity-starved banks will demand more of him in his second mandate.
On the road again
But gasoline supplies are tight on the US East and West Coasts, leaving both regions vulnerable to potential price spikes at the pump, just as the peak summer driving season kicks off. High fuel prices cut into people’s discretionary spending though, so the question is what impact there will be on the US consumer.
Consumer spending — which includes spending on services such as travel — jumped in March by the most in nearly a decade, following small increases in the previous two months. But even though first-quarter US growth was a healthy 3.2 per cent on an annual basis, consumer spending grew less. In coming months, the economy is widely seen decelerating; the question is what role consumer and travel spending will play.