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.
After weeks of speculation, the European Central Bank is set to sketch out plans on Thursday to scale back its 2.3 trillion euro stimulus scheme, probably from the start of next year.
Economists polled by Reuters expect Mario Draghi and co will cut their monthly purchases of mainly government bonds to 40 billion euros from 60 billion although the reduction could be larger.
The bigger haggling point is whether to keep the plan open ended by putting a nine or six months time frame on the reduction rather than a potential date at when it ends altogether. There have also been hints at altering the ECB's forward guidance to make clear a rate rise remains some time away.
It’s a scenario that should cheer bond investors — they’ve already pushed euro zone bond yields to 5-week lows in anticipation of what would effectively be a prolonged tapering. The euro has backed off recent 2-1/2 year highs and regional stock markets are trading near four-month peaks.
A divergence in rate views in the U.S. and Europe meanwhile have pushed the gap between short-dated bond yields in the U.S. and Germany to around 229 basis points, the widest in 17 years.
The high-flying “FAANG” stocks — Facebook Inc (FB.O), Amazon.com Inc (AMZN.O), Apple Inc (AAPL.O) , Netflix Inc (NFLX.O) and Alphabet Inc (GOOGL.O) — have risen strongly since mid-July. The exception is Amazon.com, known as the 800-pound gorilla of the group.
While revenue growth remains stellar, Amazon has been in big spending mode, which is weighing on profits. In August, Whole Foods shareholders and federal regulators approved Amazon’s $13.7 billion acquisition of the organic grocer.
Amazon shares, which have posted total returns of about 32 percent so far this year versus Netflix’s 58 percent, could surprise on the upside next week as it announces its third quarterly report on Oct. 26 and against the backdrop of how Amazon stock has underperformed over the past three months.
Indeed, Netflix reported a strong third quarter, beating analyst expectations in terms of revenue and subscriber growth. The company reported $2.99 billion in revenue and 5.3 million new subscribers, a record for third quarter growth.
Japan goes to the polls for a snap election on Sunday, with Prime Minister Shinzo Abe's ruling bloc expected to win around a two-thirds majority. A victory of that scale would likely provide Abe with a strong endorsement to stay on, which would make him Japan's longest-serving post-war prime minister.
The yen has weakened in the run-up to the election, hitting a more-than-three-month low against the dollar on Friday JPY=. That's helped the Nikkei stock index, which recorded its longest run of daily gains in over half a century, after a 14-day winning streak.
Those share-price gains signal that markets have become less worried about domestic political risks and that Abe’s gamble to take advantage of a weak opposition may pay off.
If Abe does wins a convincing victory, the yen is likely to strengthen modestly, analysts say, which could in turn weigh on the Nikkei. But a continuation of Abenomics means a continuation of ultra-loose monetary policy, spelling downward pressure on Japanese bond yields and the yen and further fuel for stocks.
China's central bank chief Zhou Xiaochuan gave an unprecedented warning on the 30th anniversary of the Black Monday Wall Street crash: the world's second largest economy must avoid the risk of a "Minsky moment."
This refers to a sudden collapse in asset prices after long periods of growth, sparked by debt or currency pressures. The comment drew attention to China's debt pile, which is at levels that preceded crises elsewhere, at a time when Chinese leaders, meeting at a twice-a-decade Communist party congress, are obsessed with stability.
But while China has accumulated record amounts of debt, its stock markets are well below 2015 peaks and the property sector is cooling, as Thursday's third-quarter growth data showed. Zhou did not say the risk was imminent, noting leverage will continue to rise. Policymakers will be relieved the warning came from Zhou, who is set to retire soon, and not from the market itself.
5/ WHAT NEXT FOR MACRI-NOMICS?
On Sunday, Argentines head to the polls for midterm legislative elections that could determine the future of market-friendly President Mauricio Macri's reform agenda. The vote will give a sense of the fallout out from Macri's unpopular subsidy cuts and other fiscal tightening measures.
But what’s really at play is whether his political nemesis and populist predecessor Cristina Fernandez can get enough support to pose a serious challenge in the 2019 presidential election, when Macri is expected to run for a second term.
Investors, eyeing the country’s vast oil and mineral wealth, want Macri’s coalition to block any chance of Fernandez with her growth-at-all-costs policies returning to the presidency in Latin America’s No. 3 economy.
Reporting by Jennifer Ablan in NEW YORK, Marius Zaharia in HONG KONG and Jemima Kelly, Karin Strohecker and Dhara Ranasinghe in LONDON