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.
Political and event risk over the coming week ranges from the possible collapse of NAFTA talks to China’s Party Congress and third-quarter Chinese growth data. Japan’s general election will follow the weekend after.
Europe holds an EU summit amid deadlocked Brexit talks, Catalonia faces a deadline to clarify its fudged independence move from Spain and Sunday’s Austrian elections could give it one of the youngest world leaders ever.
The G20 meets this weekend around the annual IMF meeting, and Federal Reserve Chair Janet Yellen, European Central Bank chief Mario Draghi and Bank of Japan Governor Haruhiko Kuroda all speak. Kuroda’s future at the BoJ could well be influenced by how Prime Minister Shinzo Abe does in Japan’s elections.
Markets are getting into the third-quarter global earnings season as well.
Speculation is swirling that U.S. President Donald Trump will announce his choice to replace Yellen at the Fed next year.
The nearly nine-year rally in risk assets is based on the so-called Bernanke put - and now the Yellen put - of ultra-low interest rates and ample liquidity. So the name drawing the most scrutiny is Kevin Warsh, a former Fed governor and avowed opponent of the “put” policies. Would that remove an important underpinning of the global rally, and at this point, would it matter?
In any case, come February, Trump may have nominated five of the seven members of the central bank’s board of governors, including the chair and two vice chairs.
Washington has dramatically increased tensions in talks to renew the North American Free Trade Agreement by proposing a ‘sunset clause’ that would force re-negotiations of the $1 trillion pact every five years. Sources have told Reuters atmosphere at the talks is “horrible”.
Mexico is expected to suffer the most damage if NAFTA breaks down, as most of its exports go to the United States. Analysts expect growth to slow and the peso to weaken.
Its finance minister, Jose Antonio Meade, has said his country is analyzing tariffs and import substitution plans in case NAFTA is scrapped. The peso MXN= is near a five-month low, Mexican stocks have lost almost 4 percent since mid-August and dollar bond prices have slipped across the curve, the 2026 issue trading at three-month lows.
China is preparing for a pivotal event. The Communist Party Congress open on Oct. 18 and will see most of the country’s top officials replaced. But all eyes will be on President Xi Jinping, who could upend decades of party tradition by seizing more power and signal he is eyeing an unprecedented third term.
Some hope a stronger Xi will put China back on liberalization path. But the fear is he will dismantle the consensus-based checks and balances put in place to prevent a return to the excesses of the Mao era.
There are also questions about the tenure of Wang Qishan, the country’s anti-corruption czar, who at 69 is considered too old for promotion, according to an unwritten rule.
Investors do not expect market volatility during the summit; regulators have already said maintaining stability will be a priority. But expected reforms of state-run companies boosted shares in defense enterprises on Friday and the yuan has gained around 1 percent this week.
A host of big U.S. companies are due to report earnings, among them Morgan Stanley, IBM, Verizon, Procter & Gamble and General Electric. Tech heavyweights SAP and ASML will report in Europe, along with Unilever, Daimler and Nestle.
Analysts have scaled back earnings forecasts for both U.S. and European companies, making it more likely they will beat the lowered expectations.
And while investors are watching with trepidation for signs of a market peak, many remain positive on U.S. stocks, expecting tax cuts to provide a further boost.
Europe is headed for its best year of earnings growth since 2010, Goldman Sachs strategists predict, as an economic recovery helps drive corporate profits.
Earnings for the S&P 500 are expected to grow 4.4 percent year-on-year for the quarter. Earnings for Europe's STOXX 600 are forecast to increase 5.3 percent, Thomson Reuters I/B/E/S data shows.
Additional reporting by Helen Reid, editing by Larry King