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.
The Bank of Japan meets on Tuesday and might be doing some ‘jinarashi’ i.e. preparing markets for some changes to its unique, ultra-loose monetary policy.
Sources have told Reuters that having failed to raise Japan’s inflation to anywhere near its 2 percent target despite some intense effort, it is now considering changing its targets or its bond-buying programme.
Five years of the qualitative and quantitative easing policy, which was last tweaked in 2016 to keep rates negative and cap the 10-year bond yield at zero, have had mixed results at best. Unemployment has dropped and the economy is no longer mired in deep deflation, but the yen hasn’t weakened enough to create noticeable inflation or ramp up economic growth.
And with a global trade war now threatening trouble for its big exporters and zero interest rates hurting its banks, the BOJ seems to have recognised that something needs to give.
(Graphic: Japan stirs talk of change to yield curve control policy: reut.rs/2JYsqFJ)
It might be holiday season but U.S markets won’t be taking much of a break next week.
Closely-scrutinised non-farm jobs data is due on Friday, two days before that the Federal Reserve will probably lay the groundwork for its third rate hike of the year in September.
The Fed’s mandate is to promote maximum employment along with price stability. The unemployment rate rose to 4.0 percent in June from 3.8 in May, when it matched the lowest since 2000. Analysts are expecting Friday’s figure for July to be 3.9 percent and for 190,000 jobs to have been added nationwide.
Given a severe labour shortage, is the economy up against maximum employment? And what does the Fed think about it all? Wednesday’s statement will get parsed, as always, for any worry about overheating in the economy or in inflation. Even tiny changes to its language can raise the temperature in markets.
(Graphic: Long-dollar bets at highest in more than 1-1/2 months: reut.rs/2JVRbSG)
The Bank of England’s Mark Carney is looking to throw off his “unreliable boyfriend” tag on Thursday and do what he and his colleagues have been threatening to do for a while - raise UK interest rates by a quarter point to 0.75 percent.
It would be symbolic as it would get BoE rates above the emergency lows of the 2007-2008 global financial meltdown for the first time, but with a potentially messy Brexit nearing the bank may sound cautious about further moves.
Market pricing doesn’t anticipate another hike for at least a year. That has been flattening the UK gilt bond curve and suppressing the pound, so unless Carney reverts to teasing about hikes again that is likely to continue.
(Graphic: UK markets since Bank of England's November rate hike: reut.rs/2K05Ps8)
The spectacular dive by Facebook’s shares this week has unnerved those crowded into the tech sector.
The $120 billion rout was the biggest one-day wipeout in value terms in U.S. stock market history and having seen fellow-FAANG Netflix tumble, and Twitter slump on Friday, there have been some painful memories of the early 2000s dot.com bubble.
The final FAANG, Apple, reports next week and any disappointments in its numbers could cause more pain for U.S. and world stocks – as Wall Street has rallied 6 percent this year, its tech sub-set is up 16 percent.
Analysts at Bank of America Merrill Lynch who keep a close eye on where investors are putting their money are warning too that the FAANGs - Amazon and Google are the other two in the quintet - are the most overcrowded trade in the world and to get out.
(Graphic: Is the rally getting long in the FAANG? reut.rs/2JXecF2)
Tech-aside, Caterpillar, a company heavily geared to world growth reports on Monday – its CEO notably said during Q1 results that those would likely be the high water mark of the cycle so if that looks to be coming true markets will take notice.
In Europe, more than 70 companies on the pan-European STOXX 600 will report. It is a particularly big week for the region’s banks, which have underperformed the broader index with a 10 percent fall so far this year.
The big guns on the list include BNP Paribas, Intesa Sanpaolo, Lloyds, ING, Barclays, SocGen, RBS, Credit Agricole and Unicredit. With issues like stuttering euro zone growth, a long-running struggle to keep up with U.S. rivals as well as bad loans and trouble in Turkey, there will be plenty to drill into.
(Graphic: Bad Banks: reut.rs/2K1w161)
Reporting by Marc Jones, additional reporting by Alden Bentley, Dhara Ranasinghe and Vidya Ranganathan; Editing by Elaine Hardcastle