Take Five - World markets themes for the week ahead
1/THE ART OF WAR
As U.S. tariffs on Chinese imports kick in, President Donald Trump is threatening to tax goods worth $500 billion -- roughly the value of all U.S. imports from China in 2017.
What could Beijing do to ease the impact on its economy? In theory, it could ease policy. It has also subtly hinted at using yuan depreciation as a retaliatory tool, by allowing the currency to post its biggest monthly loss on record in June.
Though capital outflows are a risk. Upcoming data will provide a crucial insight into China's economy - the weekend brings the latest FX reserves picture; consumer and factory inflation figures emerge on July 10; trade data due July 13 will show if trade angst had already hit exports and imports in June. All that will set markets up for Q2 GDP due the following week. Tensions with Washington may already have slowed economic growth, Reuters polls predict.
2/SAY THE WORDS YOU LONG TO HEAR
The Fed is pressing ahead with raising interest rates, global financial conditions are tightening and investors are nervous about the global economy. Emerging markets are under the cosh and bond yield curves are flattening - the U.S. yield curve is less than 30 basis points from inversion, the signal that recession is coming.
This is the backdrop to a series of speeches next week from some of the world's most powerful central bankers -- Bank of Japan governor Kuroda, European Central Bank chief Draghi, Bank of England boss Carney and Bank of Canada's Poloz all take the stand. The BoC will likely also raise interest rates next week.
Here's the balance they will try to strike: signal an exit from crisis-era stimulus but not so fast that growth and investor confidence will plummet. It won't be easy. As it stands, the current economic expansion and bull market are very long in the tooth. Fed tightening alone could be enough to end them both.
For a graphic on U.S. Yield Curve, click http://reut.rs/2zVhQyJ
3/ EARN BABY EARN
Amid trade wars signs of slowing economic growth, world markets remain relatively robust. Bumper U.S. company earning are part of the reason. Thanks to tax-cut tailwinds, Q1 earnings growth clocked in at 26.6 percent and the second quarter, starting next week, should moderate only slightly, to 20.7 percent.
However, the season is being clouded by trade tensions and their impact on corporate profits. So analysts will closely scrutinise outlook statements to see whether to adjust numbers for the rest of 2018. Right now, 23.4 percent earnings growth is forecast for the third quarter and 20.2 percent for the fourth.
U.S. quarterly earnings graphic: https://tmsnrt.rs/2MrffP3
Financials stocks won big from the tax cuts -- their Q1 bottom lines were possibly fattened by as much as $5 billion, many estimate. So eyes will be on Wells Fargo, Citi and JP Morgan reports on July 13. Thomson Reuters I/B/E/S forecast banks' Q2 growth at 22 percent.
But numbers are seen less toppy next year, slimming to 7.3 percent in the first quarter and just over ten percent for the three subsequent.
For a graphic on S&P500 earnings Q2, click
4/MAY WAY OR THE HIGHWAY
Britain's markets are in for another bumpy ride next week.
They will be digesting the outcome of a crunch Brexit showdown at the government's country retreat on Friday. Brexit Secretary David Davis has resigned because he was not willing to be "a reluctant conscript" to Prime Minister Theresa May's plans to leave the European Union. At the same time, British industrial giants are sounding shrill warnings of mass exodus if EU trade ties are lost.
May will then get a visit from Germany's Angela Merkel on Tuesday -- assuming she hasn't been ousted by then. Merkel's visit is part of a Western Balkans summit where, ironically, the main agenda is EU integration. But she will make time for a Brexit powwow with May.
And it's not just politics. On Tuesday Britain publishes monthly growth estimates for the first time, a move intended to give policymakers more timely information about the economy. The numbers will be released alongside output data for the services, industrial and construction sectors, and trade figures.
Coming days may being more volatility to oil markets too. They have already been on a rollercoaster, rising almost to $80 per barrel after output cuts by the Organization of Petroleum Exporting Countries (OPEC) and allies.
OPEC has agreed to ease output curbs but prices are receiving fresh impetus from Washington's new sanctions against Tehran. Those in turn have led Iran's Revolutionary Guards to threaten a blockade of the Strait of Hormuz, the world's most important oil artery through which a fifth of the world's oil consumption passes. Tensions are running high, with the U.S. Navy standing ready to ensure free navigation through the channel.
High oil prices are wiping out any benefits the U.S. economy might enjoy from Trump's tax cuts. But while he has lashed out at the cartel and urged it to raise production, he is also pressuring governments to stop Iranian purchases. Such rhetoric may push oil prices higher still. As will any outbreak of hostilities in Hormuz.
(Reporting by Marius Zaharia in Hong Kong; Megan Davies in New York; Karin Strohecker, Marc Jones and Jamie McGeever in London; compiled by Sujata Rao)