Traders work on the floor of the New York Stock Exchange (NYSE) in New York, US. -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.
With less than 80 days to go until Britain leaves the European Union, the path to Brexit winds to a critical crossroads on Tuesday when lawmakers vote on Prime Minister Theresa May's withdrawal deal. The agreement, which May and EU leaders say cannot be renegotiated and is the only one available, will almost certainly be rejected. If so, uncertainty, paralysis and the likelihood of a disorderly 'no deal' Brexit will rise. Volatility is nothing new to sterling, Friday being a microcosm of how the FX market is playing Brexit.
The Fed reckons the world's biggest economy is continuing to motor ahead but markets seem to think otherwise, their fears for the growth outlook knocking equity prices off record highs. More recently though they have cheered Fed Chairman Jerome Powell's comment that the U.S. central bank can be patient in approving any further rate increases. Powell said that "especially with inflation low and under control", the Fed can "be patient and watch patiently" to figure out which of the two competing narratives unfolds in 2019.
Global stock markets have suffered in recent weeks on fears that economic growth - and company earnings - are on the decline. Upcoming US company earnings will test this view. Big US hitters due to issue fourth-quarter results next week include Micron Technology, Netflix, and major Wall Street banks Citi, JPMorgan and Wells Fargo. Money has started trickling back into equity funds this week thanks to Powell's dovish comments.
But earnings expectations remain low nevertheless: I/B/E/S Refinitive data indicates S&P 500 earnings will have grown 14.5 percent in the fourth quarter of 2018, the slowest since Q3 2017, sharply lower than the 28.4 percent rise in Q3 2018 and almost flat year-on-year.
4. Shipping News
China and the United States have held their first face-to-face talks since the two world powers agreed a 90-day trade war truce. Described as "extensive", the talks have helped cheer up global equity investors. But risk aversion could rear its head again should hard data from China show what damage has been done to the economy by the initial tariff rounds.
In particular focus will be Chinese export growth. Analysts expect that to have cooled for a second month in December as front-loading of U.S.-bound cargoes faded. Poor data will be another incentive for Beijing to be more accommodative with fiscal and monetary policies. It has already engaged a reserve ratio cut for banks which should pump the equivalent of $115 billion into the economy. What remains to be seen is how accommodative it might be with U.S. demands on trade.
5. Turkey's Re-Balancing Act
Having just suffered its worst year in the best part of two decades, the Turkish lira's had a tumultuous start to 2019. It's weakened more than 2 percent year-to-date and worse still, it experienced a flash crash on Jan. 3, which was a reminder of all its vulnerabilities: from geopolitics to upcoming elections and haphazard monetary policy.
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