Take five: “Auf Wiedersehen Merkel, hello…? “
Here are five big themes that are likely to dominate the thinking of investors and traders over the coming week and the Reuters stories behind them.
1 / THE GERMAN MUTTI STOPS
Sunday’s German elections are close and the stakes for Europe’s largest economy could not be higher. After 16 years of stable center-right leadership, Chancellor Angela Merkel will step down.
Polls suggest that the center-left Social Democrats (SPD) will form a coalition with the Greens and the liberal FDP, dubbed the Traffic Light Alliance because of the parties’ red, green and yellow colors.
But the number of undecided voters is at an all-time high in recent memory, so other outcomes are possible. The SPD’s Olaf Scholz is the voters’ choice to succeed Merkel, but coalition talks could take weeks, if not months. The first reactions of the market to the result of the elections could prove to be premature.
2 / DATA DIVING
The Federal Reserve has downgraded its US growth forecast for 2021 and projects a rate of 5.9%, against 7% previously. Future data will show whether the coronavirus continues to undermine the recovery.
Consumer confidence in September is strong, after August readings were well below estimates, falling to a six-month low.
The markets will have a fresh take on the housing market in the form of data on house prices and house sales, while the Personal Consumption Expenditure Index (PCE) will offer a snapshot of inflation. A Reuters poll forecasts an annual increase of 3.7% in the Fed’s preferred inflation indicator, just above 3.6% in July.
3 / CAUTION! FRAGILE CHINA
The misfortunes of the indebted Chinese developer Evergrande are gnawing at global markets. No wonder because the real estate sector weighs, directly or indirectly, on a quarter of the huge economy of the country.
The developer has more payment terms next week, but the bigger picture, the size of the Chinese economy, implies that there is a high risk of an impact on global growth – commodity prices, currencies. emerging markets and even European elevator manufacturers have all felt the heat.
BIS data shows that Chinese banks had around $ 1.6 trillion in cross-border liabilities at the start of 2021. Given their exposure to real estate, through mortgages and loans to real estate companies, any implosion could have repercussions around the world.
4 / HIGH HICP
The ECB would expect inflation to hit 2% by 2025. Despite analyst skepticism, soaring electricity prices and infiltration elsewhere, including in inflation expectations, could mean that he might not be too far from that mark.
From this perspective, early readings of the HICP for Germany and the euro zone – the harmonized consumer price index used by the ECB – expected on Thursday and Friday respectively – are interesting. The German HICP hit a 13-year high of 3.4% in August, while consumer inflation at 3.9% was the highest since 1993.
Eurozone consumer inflation expectations have doubled this year, surveys suggest, while bloc-wide HICP inflation hit 3% in August, the highest since 2012. electricity have already had an impact on the numbers and September could post a further increase.
5 / CHOOSE A FIRST
The ruling party in Japan votes on Wednesday for its new leader, with the winner set to be the next prime minister. And it’s a close race.
Of the four candidates, vaccine minister Taro Kono is the frontrunner, while former foreign minister Fumio Kishida is the challenger. Sanae Takaichi and Seiko Noda, also former ministers, are each vying to be the first woman to hold the highest office, but are seen as long distances.
Kono is favored by the grassroots of the Liberal Democratic Party, but his reputation as a maverick makes party veterans suspicious. Kishida is more traditional, but is hampered by a bland image.
If Kono does not win an absolute majority, the top two will go to a second round, where Kishida should have an advantage.
Investors seem to be betting on Kono. Renewable energy and office tech stocks that could benefit from his policies outperformed medical services stocks, where Kishida advocates higher spending.
Source: Reuters (Reporting by Sujata Rao, Dhara Ranasinghe and Marc Jones in London; Lewis Krauskopf in New York and Kevin Buckland in Tokyo; Compiled by Sujata Rao; Editing by Hugh Lawson)