In this Global Week Ahead, the week’s macro calendar shrinks back, when compared to weighing trade war tactics.

Wednesday’s dump of Mainland China macro data and U.S. retail sales is the bona fide exception.

Traders are caught up trying to price a protracted Trade War stalemate.

• The fact Chinese Vice Premier Liu He’s meeting with U.S. Treasury Secretary Mnuchin and USTR Lighthizer lasted for just a few hours this past Thursday evening and Friday morning serves as an indication of that
• As the U.S. imposes more China import tariffs, stock market participants will be on guard for details on China’s pledge to retaliate
• The risks of spiraling tit-for-tat effects have not been greater since this tough U.S.-driven trade agenda launched

2,857. That’s the current 50-day moving average for the S&P 500. It’s an early technical level to watch. The S&P 500 is up +13.6% YTD. The excuse of a trade war was a convenient one. It was time to take profits anyway.

The S&P 500’s 200-day moving average is 2,773. That’s a deeper drawdown, where we might find technical support.

Next I force ranked Reuters’ five major world market themes. These ones likely dominate the thinking of equity investors and traders in the Global Week Ahead.

(1) Yield Curve Inversion?

Moody’s warned this week that a trade war could tip the U.S. economy into recession next year. And President Trump’s latest decision to hike tariff rates on Chinese goods has possibly brought that risk a bit closer.

At least the bond market seems to think so — the yield on three-month U.S. Treasury bills is on the cusp of rising above 10-year yields.

A sustained curve inversion, as such a shift is called, would be seen as a sure-fire recession signal; in a normally growing economy, longer-dated borrowing costs are higher than short-term rates.

But the curve has sent a false alarm at least once before and some believe it is doing so again, above all because huge Fed purchases have depressed longer yields. Huge issuance of short-term debt is also likely to have contributed to the flattening.

Which brings us to another question: Given 2019 net borrowing will top $1 trillion, might Washington find itself scrambling to find buyers? Some dismal bond auctions recently have raised the question whether China is paring Treasury purchases — due to the escalating trade spat. Simmering tensions will keep the issue alive.

(2) How’s China’s Domestic Economy Doing? Find Out Wednesday

Industrial output, retail sales, house prices: a batch of data due in coming days was supposed to give investors an idea about how China’s economy was faring against a backdrop of 10% U.S. tariffs and authorities’ stimulus policies.

Fast-forward and the stakes have been raised — quite a lot. On Friday, Washington hiked tariffs on $200 billion worth of Chinese goods to 25% and Trump, reverting to twitter, has threatened more. Beijing warned it would retaliate, though it didn’t say how.

Negotiations to try to end a 10-month-old trade war between the world’s biggest economies are continuing, and markets have taken heart from China’s decision to stick with the talks.

Another factor is China’s central bank, which assured markets it had “rich” policy tools to cope with external uncertainties. Weak economic data can only cement that resolve.

(3) U.S. Retail Sales Out on Wednesday, Too

Few U.S. data series have been as choppy in recent months as retail sales.

December’s drop in core sales was the largest in nearly two decades — only to be followed by an equally large swing to the upside in January. Demand for big-ticket items like cars then pushed the March total to the highest in 18 months.

Consumer resilience, emboldened by a strong job market, was a key pillar of support for the U.S. economy in the first quarter. So the April reading will show if that willingness to spend continues into Q2.

Reuters estimates point to the first back-to-back rise in retail sales since November. Headline sales are seen up 0.2%.

The report comes soon after Trump imposed new tariffs on $200 billion of Chinese imports, but it is far too soon to see a meaningful impact from the trade war between the world’s two largest economies. Shoppers will probably not start reacting to sticker shock until the third quarter.

(4) Are Oil Prices About to Take a Leg Higher?

The world economy seems to be shifting into a lower gear but Brent crude futures are holding above $70 a barrel, up 30% this year. Barclays sees a climb to $74-$75 in the coming year.

In the short-term too, oil looks well supported. On the demand side, Chinese imports hit a record in April, possibly due to economic stimulus measures taking effect. A pipeline contamination issue in Russia and U.S. sanctions that have cut shipments from Venezuela and Iran has curtailed supply.

Venezuelan exports have dropped 40% since January and Iran’s exports have more than halved, to one million barrels per day or less. They are expected to slide further in May.

None of these issues will be resolved anytime soon. Iran for one is threatening to retaliate against U.S. sanctions by breaching a nuclear pact signed in 2015. Sanctions have failed to dislodge Venezuelan President Nicolas Maduro, but they are likely to cut oil exports further in May, after the expiry of an April 28 deadline for U.S. firms to complete existing deals.

(5) Worry About Italy in Europe

Once again it seems there’s good reason to fret over Italy, the Eurozone’s third-biggest economy — and one of its most indebted.

Tensions have flared within the ruling coalition over a corruption scandal that cost a junior minister his job. Rome may find itself footing the bill for a bank bailout after BlackRock ditched a proposed rescue of Carige. And finally, the European Commission has warned that Italian finances may deteriorate further. So another showdown with the EU might be looming.

How talks on deficit targets may pan out could become clearer at the May 16 Eurogroup meeting of finance ministers.

Signs of compromise will bring relief to Italian bond markets, where yields have seen their biggest weekly jump in three months with a rise of over 10 basis points. Contrast that to Spain and Portugal, often lumped in with Italy as the Eurozone “periphery” — 10-year Spanish yields are at 2-1/2 year troughs while Portuguese yields have touched record lows.

The latest bond sell-off, which took Italian yields to 2.7%, is small compared to the rout a year ago when yields spiked to 3.4%. But who could be blamed for a sense of deja vu?

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Key Global Macro—

The big macro data day is Wednesday. That’s when the trove of China data comes out and U.S. retail sales hits.

On Monday, the Fed’s Clarida and Rosengren speak in Boston.

On Tuesday, Germany’s HICP (its harmonized consumer price inflation rate) comes out. The y/y number is at +2.1%. That is a tad over the target of +2.0%.

In comparison, the flash HICP for Spain should be +1.6% y/y.

The U.K.’s ILO household unemployment rate should be 3.9%.

The German ZEW indexes come out.

On Wednesday, we get China’s Fixed Asset Investment (+6.3% prior, +6.4% forecast), Industrial Production (8.5% prior, +6.0% forecast), and Retail Sales numbers (+8.7% prior, +8.5% forecast).

I note only Fixed Asset Investment is higher this time. That shows us where to see direct China stimulus to demand, but not necessarily indirect effects.

U.S. retail sales also come out. Ex-autos should be up +0.8% m/m.

On Thursday, Indonesia’s central bank rate (the 7D reverse repo) gets set. Look for no change at 6.0%. This is relevant, as the ‘risk-off’ sentiment sweeping emerging markets will get tested here.

U.S. building permits (1.3M) and housing starts (1.21M) should get a lift with the seasons.

Mexico’s overnight policy rate gets set. Look for no change at 8.25%.

On Friday, three Fed speakers hit the trail, and the University of Michigan sentiment index comes out. At 97.2, it has been staying high.