Take Five: World Markets Themes for the Week Ahead

LONDON (Reuters) – Below are five broad themes that may dominate investor and trader thinking over the coming week and Reuters articles.

1 / BOND ON THE RACE

US Treasuries – and perhaps financial markets around the world – are at a critical juncture. Bond liquidation is accelerating, pushing yields to 10 years above 3% at the highest since May and in view of the levels observed in 2011.

Is it the break, the reversal of the 30-year bull market that some people have spent years predicting? If 10-year yields exceed 3.128%, this view will gain credibility. There are still many reasons for evaluating political, fundamental and purchase-related obligations. But once a market move is gaining momentum, it can be difficult to stop.

The yield on 10-year treasury bills is important because it is the rate at which billions of dollars of borrowing are mentioned around the world. It affects all the markets of the world.

But oddly, the markets do not pay as much attention as one might expect. Wall Street has hit new highs in recent days, emerging market equities have risen four weeks over the last five and market volatility remains low. Even the volatility of the Treasury market. This could become more interesting in the coming week.

– TREASURIES-Inflation, lower trade fears push 10-year yield near 2011 peak

– Traders take the Fed's benchmarks, leverage US rate hikes

– COLUMN-As trade war intensifies, US Treasury assets come to the fore: McGeever

GRAPHIC: 10-year US bond yield – reut.rs/2prKKit

2 / WAITING FROM THE EDF

A rate hike at the September 25-26 US Federal Reserve policy meeting is anything but certain – raising the rate to 2.00% to 2.25%. And probabilities also rose for a hike in December and more bumps until 2019.

But market watchers have already turned their attention to the question of when to call the next downturn.

The traditional indicator is the inversion of the yield curve – in the United States this has been a fairly accurate predictor of recessions. However, another interesting sign could be read from the relationship between the rate of funds fed and employment.

The federal funds rate exceeded the employment rate before previous recessions – and the unemployment rate, currently 3.9%, is now close to the lowest in 18 years.

Thus, the rate of investment funds and the rate of employment are still not far away. But they are getting closer a bit and another rise will reduce a little more away.

– the growth of employment in the United States; largest annual salary gain since 2009

– Traders pile bets on US rate hikes

– The Powell Rock, the hard place: ignore the yield curve or the tight job market

GRAPHIC: Beyond the US yield curve – reut.rs/2MQ2ZYr

3 / RRR-ALLYING THE TROOPS

Much of the universe of emerging markets is in a hurry to tighten monetary policy, but in China, speculation is such that the authorities will reduce reserve requirement rates again.

On the one hand, the trend of this year's RRR cuts has been quarterly. Secondly, the economy seemed slower. And finally, the new US tariffs of 10% on about 200 billion dollars of Chinese products will come into effect on September 24, reaching 25% by the end of the year. China's retaliatory measures against 5,207 US products also come into effect next week.

With the trade wars that will weigh on the economy, the Chinese authorities, despite a campaign to reduce risky financing, have little choice but to provide support. Not via a large stimulus plan, but through targeted measures, such as the reduction of RRRs.

The problem lies in the fact that monetary easing will exert pressure on the yuan, which is not much lower than the key level of $ 7, a rate which in recent years has tended to inflate prices. capital outflows. These fears of exit are inferior to what they were. But policy makers will always have to be cautious.

– Ratios of reserve requirements in China and the yuan tmsnrt.rs/2pq28nK

– China more confident after stabilizing the yuan

– China says currency will not be weakened to boost exports, as US tariffs rise

GRAPHIC: Reserve reserve ratios in China and the yuan – reut.rs/2poDnZc

4 / BUDGETS AND BUILDINGS

D-Day threatens the markets of the Italian public debt. Known as the BTP, the bonds are trading nervously before the deadline of 27 September for the Italian coalition government to present the details of its 2019 budget. The focus will be on the budget deficit, the cause of the months angst of investors.

In a corner, the Minister of Economy, Giovanni Tria. Without any party affiliation, Tria assured the markets that it would keep the deficit below the limits set by the European Union – 3% of annual GDP. This has pushed Italian risk premiums down steadily over the summer – 10-year yields are above 50 basis points at the end of May.

But Tria clashes with coalition cohorts, Luigi Di Maio and Matteo Salvini, deputy prime ministers, who are increasingly vocal in demanding more spending to keep the election promises.

Horse trading has increased market volatility. But in the longer term, a budget that prevents conflicts with the EU could trigger a deterioration of the credit rating and an exodus of foreign investors. And all of this could hit just as the ECB's bond buying program ends.

– Italian government allies seek higher deficit to boost growth –

– Italian bond yields fall as investors wait for budget clarity

– Italian Di Maio says government is united to keep campaign promises

GRAPHIC: Rough ride for holders of a 10-year Italian bond – reut.rs/2prVuO5

4 / EMERGING FROM DARKNESS

Do not say it too hard, but the tornado emerging markets may well have gone. The main reason is the sudden loss of dollar power, as well as China's confidence in the fact that the devaluation of the yuan is not at the rendezvous. But the week ahead could make or break the rebound, whether the Fed meeting will eventually top up the dollar or whether Beijing's retaliation at US commercial rates are more severe than they have reported.

But there have also been other changes – for example, the impressive rise in interest rates in Turkey that has stabilized the lira and signs of progress in Argentina's negotiations on an IMF loan. Some major investors have also said the sale could be exaggerated – many currencies are trading well below what could be considered fair value.

There is a blizzard of data from Brazil and India and many meetings with central banks. It will be the turn of the copper company to dispose of its budget.

– Emerging currencies crisis could lead to wider economic problems

– Turkish central bank sharply increases rates and stimulates read

– EMERGING MARKETS – The recovery is strong, the Hong Kong dollar is unleashed

GRAPHIC: to emerge from sadness? – reut.rs/2prEgQF