Five world markets themes next week
LONDON (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/ TUSSLE FOR DIRECTION
The tussle between bullish and bearish inclinations -- with bears gaining a bit of ground so far this month -- is being played out over both earnings and economic data. Alcoa got the U.S. earnings season off to a good start but a heavier results week lies ahead and could toss some banana skins into the market's path. Key financials, technology bellwethers (IBM, Google, Intel), as well as big names like GE, Nokia, Johnson and Johnson will offer more food for thought for those looking past the simple defensive versus cyclical split to choices between early cyclicals, such as consumer discretionaries, and late cyclicals, such as industrials, based on the short-term earnings momentum. Macroeconomic data will need to confirm the picture painted by unexpectedly German strong orders and production figures this week to give bulls the upper hand.
2/ FINANCIAL FOCUS
The heavy financial results slate (Goldman, JP Morgan, Bank of America, Citi) will show the extent to which balance sheets are being cleansed of toxic assets and the health of, and outlook for margins, trading revenues, etc. The relative performance of the firms reporting could put the spotlight on the split between investment banking and retail exposure. In Europe, Swedbank's results will be watched for Baltic exposure while clarity is still being sought on what banks plan to do with the large chunk of ECB one-year money which they continue to park back at the ECB in the form of overnight deposits.
3/ JAPANESE DILEMMA
The BOJ's policy meeting poses thorny questions on quantitative easing (QE), with the policy debate complicated by sharp gains in the yen. The yen has risen as much as 10.5 percent in three months against the dollar and is nearing the 90 threshold which is viewed by the foreign exchanges as the point at which the Japanese authorities start ratcheting up the rhetoric. Further sustained yen gains will fuel market debate about the fallout for carry trades and for exporters -- and by extension economic activity.
4/ HOOKED ON QE
The sharp jump in yields in gilts, euro zone debt, and Treasuries seen after the Bank of England deferred any decision on expanding its QE program gave a good indication of how bond markets could react when central banks flag that the QE taps will finally be turned off for good. Implementation of exit strategies may be some way off and producer and consumer price data from both sides of the Atlantic next week are likely to be subdued. However, base effects from the oil price peaks of 2008 are expected to fade in the coming months, leaving a less supportive inflation backdrop.
5/ CHINA
The FX reserve debate was aired by the highest-ranking Chinese politician to date at L'Aquila summit and U.S. TICs data next week should keep the reserve holdings issue on the boil. Attention is also on Chinese domestic/trade policy following violence in Xinjiang and strains in relations with Australia over Rio Tinto staff detention. Any escalation in either could prompt investors to review the potential for regional outperformance.
(Compiled by Swaha Pattanaik; Editing by Ruth Pitchford)
