November 16, 2018 / 1:38 PM / a month ago

Take Five: Black Friday shoppers to Brexit wreckage, world markets themes for the week ahead

(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.

A man walks past television screens during the shopping season, 'El Buen Fin' (The Good Weekend), at a Sam's Club store, in the early hours of Friday, in Mexico City, Mexico, November 16, 2018. REUTERS/Henry Romero

1/A (BREXIT) RECKONING

Prime Minister Theresa May’s long-awaited Brexit deal triggered a wave of ministerial resignations that has rocked her government and financial markets and raised chances of a snap election.

The pound took the hardest beating. Traders who had hung back from big sterling bets for much of 2018 rushed to sell it, fuelling its biggest daily drop against the euro since 2016. Gilt yields tumbled too and the FTSE index, which usually rises when sterling falls, lost that inverse correlation and closed flat after Thursday’s mayhem.

One-month implied volatility on sterling — basically a gauge of how much traders expect it to swing in a given period — has climbed to over 15 percent. Not only is that double the volatility of the euro and almost triple yen and Swiss franc levels, it has now entered territory reserved for emerging currencies such as the Brazilian real and Turkish lira.

May might now need to survive a no-confidence vote, possibly on Tuesday. Even if she does, she has her work cut out to get the unpopular deal through parliament next month.

GRAPHIC: Sterling positions and valuations - tmsnrt.rs/2PrxbPH

2/S-H-O-P-P-I-N-G

The biggest shopping day of the year, Black Friday, is almost upon us and, according to Refinitiv, retailers are going to have to discount like crazy because the U.S. Thanksgiving holiday lands on the early side. 

This year’s Christmas shopping period kicks off on Nov. 23 but it gets stretched over five weekends, meaning retailers will be forced to plan additional promotions, Refinitiv said. So the festival which supposedly “turns red ink into black on the ledgers” may make or break fourth quarter results for some firms, Refinitiv warns.

A Reuters/Ipsos poll indicates 38 percent of American consumers plan to shop that day and of those, 37 percent will shop mainly online. Online spending over the 2018 holiday season will grow 14.8 percent from a year ago, outpacing the 2.7 percent growth predicted for brick-and-mortar locations, Adobe Analytics estimates.

Black Friday will also focus attention on U.S. retailers’ earnings. These have so far been a mixed bag; Walmart has posted robust sales and raised its full-year outlook, while Nordstrom and J.C. Penney were less fortunate. Next week will bring third quarter results from the likes of Target, Gap, Best Buy and Dollar Tree.

Refinitiv data may offer clues as to where shoppers are heading with their dollars; discount and specialty sectors may be the strongest performers, with department stores the weakest, its analysis shows

3/CRUDE AWAKENING?

It’s been a tumultuous six weeks for oil, sliding into a bear market and chalking up its longest losing streak on record, including a 7 percent one-day plunge on Nov. 13. The bleeding seems to have stopped, but for how long? What’s certain is that any talk of $100-per-barrel oil has ceased.

The savage selloff has taken oil nearly 30 percent lower since early October. All else being equal, this should put downward pressure on inflation in the second half of next year, just as the economic cycle is expected to be in the process of rolling over. Throw in a potential equity downturn following the longest bull run in history, and the scope for higher interest rates across the developed world looks limited. Central banks may even be contemplating rate cuts by then.

For now, oil markets have steadied, in part thanks to speculation of an OPEC production cut. But once in a bear market, it’s sometimes very difficult to get out.

GRAPHIC: U.S. crude oil - tmsnrt.rs/2QNE5ew

4/PAROLE FOR PATEL?

India’s financial markets are on edge as the government and the central bank prepare for what could be an acrimonious RBI board meeting on November 19. Tensions have been simmering between the government and the RBI for months, contributing to heavy bond market outflows and making the rupee the worst performing major Asian currency this year.

RBI Governor Urjit Patel called the meeting amid tensions with the Modi administration on several issues, from lending curbs on banks to sharing central bank reserves. The government threatened to invoke a section of the RBI Act that would allow it to dictate policy; Deputy Governor Viral Acharya warned against undermining RBI independence, citing Argentina as an example of how things could go wrong.

Very nervous markets are now hoping for a truce. Sources say the sides are trying to iron out a deal that lets Patel keep his job while the RBI eases lending restrictions.

Heading into 2019 general elections, the government is looking to provide some economic stimulus. Yet efforts to bulldoze the RBI, whose inflation credentials and independence are highly regarded, could backfire in unforeseen ways.

GRAPHIC: Indian rupee, yields - tmsnrt.rs/2PfUqvT

5/BITCOIN BITTEN

After weeks of relative calm, the crypto world has witnessed a shake-up. Bitcoin, the big daddy of digital currencies, is set for its worst week since August. Other, lesser, coins such as ethereum and XRP have also been mauled.

The sudden return of volatility has disappointed many who had hoped that violent price swings - a feature of bitcoin in its first decade - were a thing of the past. Some attribute the upheaval to breaches of key technical support levels, while others blame fears that the “hard fork” in bitcoin cash, where the smaller coin that emerged out of bitcoin split into two separate currencies, could destabilize others.

Having traded at almost $20,000 last December, bitcoin fell this week below $5,500, or 70 percent from those peaks. It’s particularly galling for those who hope bitcoin is moving into the mainstream - after all, price stability is a necessary feature if it is to ever evolve into a usable currency.

GRAPHIC: Bitcoin's bad week - tmsnrt.rs/2QHZ0zG

GRAPHIC: Black Friday - tmsnrt.rs/2QMmqEh

Reporting by Alden Bentley in New York, Vidya Ranganathan in Singapore, Tom Finn, Jamie McGeever and Tom Wilson in London; compiled by Sujata Rao; Editing by Gareth Jones

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