Five world markets themes in the coming 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/ WHAT'S IN CHINA'S BASKET?

Beijing's announcement it will consider "major currencies," not just the dollar, in guiding the yuan's exchange rate puts extra focus on U.S. President Obama's visit to China next week. Adding to the anticipation, finance ministers of APEC countries, including China, endorsed "market-oriented" exchange rates. The Chinese announcement raises the questions of which currencies will be included, what would be the impact on those currencies and when any new regime would take effect. Echoing calls from Washington, some emerging economies are also unhappy with yuan weakness so the FX market will watch closely for any details.

2/ CAPITAL CONTROLS RE-SET

Resistance to local currency appreciation is rearing its head again from Taiwan to Brazil. Then there is the outright resistance to appreciation shown by the likes of Russia, which is intervening directly in the currency markets to the tune of up to hundreds of millions of dollars a day. These emerging markets individually and collectively may be relatively small in relation to the $3 trillion-plus a day FX market, but as investors are discouraged from pouring capital into them, it leaves the path of least resistance in this long-term dollar downtrend still against the free-floating currencies.

3/ EURO PAINFUL NOT BRUTAL

If the euro gains a sustainable foothold above the psychologically important level of $1.50, expect more rhetoric from European companies, politicians, business groups, and possibly even ECB officials. French Finance Minister Christine Lagarde has already spoken on the issue, but the market is likely to essentially ignore all that until ECB head Jean-Claude Trichet himself steps in. There seem to be limited grounds to protest about the pace of the euro's rise, since that has so far been anything but "brutal." Indeed, risk reversals on euro/dollar options show traders are more concerned about a sharp reversal rather than a continued climb towards $1.55 then $1.60 and beyond into uncharted territory.

4/ RECOVERY PLAY

Financials, miners and other cyclical stocks have been the best performers in Europe since March, and many investors will probably stick with them as the year-end approaches for fear of lagging behind overall market performance. But a shift may be underway as the market has moved from discounting recession to discounting recovery. Underperforming defensive stocks, such as telecoms, tobacco and food producers, offer higher dividends while government bond yields remain relatively low and have more scope for re-rating.