June 22, 2018 / 4:39 PM / a month ago

GRAPHIC-Take Five: World markets themes for the week ahead

LONDON, June 22 (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. 1/Trade winds in China As the trade war rhetoric starts to turn into action, China's markets are on the defensive. The yuan has fallen to its lowest against the dollar since early 2018, stocks just had their biggest weekly decline in five months, and cash rates are rising, with the 14-day repo rate hitting a two-month high as firms locked in funding to cover the end of the quarter.

The question is: What might authorities do? At present they are trying to keep markets flush to make sure the economic wheels keep turning – the central bank injected a net 340 billion yuan ($52.3 billion) in the past week, including 200 billion yuan via its one-year medium-term lending facility. Banks' reserve ratios are also likely to be cut further.

These policy easing expectations are partly driving the yuan's slide, but investors are wondering now how far the weakness could go.

A weak yuan might help offset the trade impact. Yet a rapid currency fall, aside from provoking more ire in Washington, could feed on itself by fuelling further outflows of money from China, as happened after the August 2015 devaluation. It would also be bad news for other emerging markets such a Taiwan, Mexico and South Korea that compete with China in export markets. China eyes reserve cuts, other policy measures to aid small firms EXPLAINER-What can Beijing do if China-U.S. trade row worsens? Slowdown, default risks to prompt China reserve cut-sources 2/CONSUMED BY TRADE Increasingly hostile trade war rhetoric, mixing in with tit-for-tat tariffs increases risks for investors and consumers concerned about their portfolios and prices they pay for imported goods.

U.S. consumer confidence however is expected to remain at a lofty level in June as corporate profits remain healthy. The report, due on June 26, is forecast by a Reuters poll of economists to hold steady at 128, just off an 18-year high hit in May.

Economists point out the amount of tariffs being threatened is overall quite small in the context of a $20 trillion U.S. economy. In the case of China-U.S. trade, Beijing exports more than it imports, meaning it will run out of products it can tax well before Washington does. But try explaining that to people buying a TV to watch the World Cup. UPDATE 5-Washington's 'capricious' trade actions will hurt US workers, China warns – Reuters BRIEF-US May Consumer Confidence Index 128.0 vs April 125.6 - Conference Board 2/HERE'S LOOKING AT EU The migration debate is overshadowing the official agenda for the June 28-29 EU summit, which means chances are slim of market-moving reforms being finalised. Nonetheless, up for discussion will be blueprints for strengthening the ESM bailout fund, a common euro zone budget and the banking union project to boost trust in the bloc's financial sector. The summit may also debate plans to further ease debt restructurings in Europe.

As for country-specific issues, Italy and Britain will be in focus -- the summit will mark the first EU airing for Italian Prime Minister Giuseppe Conte. For Britain, meanwhile hopes are ebbing the event will break a deadlock on how to exit the EU as Prime Minister Theresa May is struggling to find a proposal on post-Brexit customs arrangements to take into the negotiations.

The weekend marks the second anniversary of the Brexit referendum and the clock is ticking down to the scheduled exit date of March 29, 2019. Sterling, down 8 percent since mid-April, is enjoying a brief reprieve thanks to an unexpectedly hawkish Bank of England meeting on Thursday but remains on course for its worst quarter since the Brexit vote. FACTBOX-Plans to strengthen euro zone bailout fund ESM FACTBOX-Plans to complete the EU banking union May faces down pro-EU rebel lawmakers to win Brexit vote Merkel, Macron back euro zone budget in "new chapter" for bloc

4/SOFTLY, SOFTLY Flash euro zone inflation figures are expected to show exactly why the ECB's retreat from crisis-era stimulus measures will be glacial. Economists anticipate a 1.3 percent annual rise in consumer prices in June, short of the ECB's target of "below, but close to, 2 pct over the medium term".

The ECB will end its 2.4 trillion euro bond-buying programme in December, but signalled that negative interest rates are here to stay for some time. That means Mario Draghi's 8-year term as ECB president could end in October 2019 without his ever having presided over a rate rise.

Since the ECB policy decision and Draghi's press conference on June 14, the euro has fallen as much as 2.6 pct and came close to breaking below $1.15 for the first time in almost a year. Morgan Stanley and others have lowered their euro forecasts, and weak inflation data could see another test of $1.15.

ECB to end bond buying but pushes out first rate hike ECB's baby tightening steps contrast with Fed strides, and rightly so: McGeever ECB patient and gradual with rate hikes, Draghi says

5/SYNCHARITIRIA ELLADA (CONGRATULATIONS GREECE) Having received three bailouts since 2010, Greece has taken a big step forward -- the euro zone has agreed to extend bond maturities and defer interest on a major part of its loans to Athens, along with a big cash injection. This makes Greece's debt load more sustainable, smoothing its path for the time after it exits the bailout in August.

Markets have reacted accordingly, with five- and 10-year bond yields falling 23 and 16 bps respectively, the latter at a four-week low .

This is good news for a euro zone facing the risk of another crisis, this time in Italy. For Greece, the question now is when it can start borrowing on markets again. It sold bonds last year for the first time in three years and wants to raise another 4.5 billion euros in 2018, including its first 10-year issue in a decade.

The prospect of a new Greek issue is also tantalising fund managers and investment bankers. But Greece has no immediate need for cash and the selloff in Italian debt has made issuance harder for southern European borrowers. Still, syndicate bankers reckon Athens should be able to grab a window of opportunity sometime before the August lull.

Greece gets debt relief from euro zone Greece says Eurogroup debt deal positive, debt now viable Greece plans more bond issues to shore up post-bailout future

Reporting by Daniel Bases in New York, John Mair in Sydney, Abhinav Ramnarayan, Jamie McGeever and Tom Finn in London; compiled by Sujata Rao; editing by David Stamp

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