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LONDON (Reuters) – Below are five events and themes likely to dominate global financial markets this week.
1/INFLATION PALPITATIONS
U.S. consumer price data out on Wednesday will provide some answers to one of the most pressing questions in world markets at the moment: how sustainable is the current surge in U.S. inflation?
Last month’s jump of 0.9% was the strongest gain since June 2008. May was pretty punchy too at 0.6% and economists polled by Reuters think July’s figure won’t be far behind, at 0.5%.
The Federal Reserve’s hawks are watching these figures, well, like hawks. After Friday’s strong payrolls data, another hot number will bolster their case for the central bank reeling in stimulus sooner rather than later. That could cause summer squalls in the record high stock markets and the red hot bond markets.
Graphic: CPI has jumped in recent months, https://fingfx.thomsonreuters.com/gfx/mkt/mopanmzqxva/Pasted%20image%201628114057120.png
2/HOLI-DAZED
Back in March, Morgan Stanley (NYSE:MS) predicted another lost summer for tourism, surprising some, given the vaccine optimism at the time. Now in August, when beaches and cities are normally packed with holidaymakers, their call looks bang on.
Spain welcomed 75% fewer tourists last month than in June 2019. Greek islands, billed as “COVID-free”, are coming under travel curbs again, as well as suffering wildfires. Thailand’s Phuket has just 1% of the visitors it had before the pandemic. Turkey’s second-quarter tourism revenues were $3 billion, versus $8 billion in Q2 2019, while Kenya welcomed just 300,000 visitors in H1 compared to 2 million in 2019.
Given that tourism directly contributes 6% of European GDP and nearly 8% of employment, it is unsurprising the euro zone services business expectations index has slipped to three-month lows and European travel shares have lost 13% since April. The Thai baht has slumped to its lowest since 2018. It’s enough to make you need a holiday.
Graphic: Tourism shares, https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgmzeypb/Pasted%20image%201628160517254.png
3/HEADWINDS IN ASIA
Chinese data over the weekend and in coming days is showing how much damage Beijing’s regulatory crackdown, recent floods in Henan province and the new COVID-19 wave – both at home in and in nearby countries – is doing to the giant economy.
There is plenty to ponder. China’s export growth has unexpectedly slowed, data on Monday showed, yet inflation in the country’s huge factories was higher than expected, highlighting the pressure coming from rising raw material costs.
Headwinds to growth are already spurring calls for further cuts to reserve requirements and even possibly policy rates, both in China and its neighbourhood. Tourism-dependent Thailand’s currency is at 2018 lows forcing the Bank of Thailand to turn dovish while the Philippines might copy China’s lead on Thursday and cut it own bank reserve requirements.
Graphic: China cracks down on tech, tutoring and property, https://fingfx.thomsonreuters.com/gfx/mkt/byprjorzzpe/techtutoringproperty.jpg
4/COVID CLAIMS
Tried to get COVID insurance and failed? Most of Europe’s big insurers have stripped cover for the pandemic from their policies, setting them up for much stronger results than last year, when the virus caught them unawares.
France’s AXA and Italy’s Generali (MI:GASI) and Germany’s Allianz (DE:ALVG) have notched good numbers already and next week sees the turn of Zurich, Dutch pair Aegon (NYSE:AEG) and NN (NASDAQ:NNBR) and Britain’s Aviva (LON:AV), M&G and Prudential (NYSE:PUK).
And it is not only the COVID life insurance of business claims that will be of interest. Activist investor Cevian recently grabbed a 5% stake at Aviva and Prudential is in the process of severing its U.S. arm after pressure from another corporate raider, Third Point (NYSE:SPNT).
Graphic: Europe’s insurance firms, https://fingfx.thomsonreuters.com/gfx/mkt/klpykerbdpg/Pasted%20image%201628237596921.png
5/ZAMBIA VOTES
Zambia goes to the polls on Thursday in what looks like being a close fought election between incumbent president Edgar Lungu and serial challenger Hakainde Hichilema, known as HH.
Analysts say it is likely to decided by young and first-time voters frustrated by an economy with the highest unemployment in 10 years and soaring living costs due to a collapsing currency.
It is also in default. A debt restructuring has been put on hold until after the election but it is not just any restructuring. It is supposed to be the first big test of the ‘Common Framework’ debt relief plan set up by G20 nations last year. They need Zambia to be a success so that other reluctant countries follow it, so whoever wins the election will be firmly in the spotlight.
Graphic: Zambia’s bonds have been rallying on IMF hopes, https://fingfx.thomsonreuters.com/gfx/mkt/byvrjoblrve/Pasted%20image%201627905739297.png
