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Five World Market Themes in the Coming Week

Friday, 17 January 2014 11:21 AM

The following are five big themes likely to dominate the thinking of investors and traders in the coming week.


Eurozone peripheral debt and equities have rallied this year in anticipation of economic recovery in the bloc's most indebted countries. How far the rally has to go may to some degree depend on eurozone flash PMI data for January due in the coming week. If the picture is one of a continuing pick-up, bond yields, already heading toward four-year lows in Spain and Portugal and close to eight-year lows in Ireland, could drop further.


A strong PMI could also put upward pressure on eurozone money market rates, which have spiked higher this month as surplus cash in the financial system has fallen to a two-year low. The Eonia overnight rates at which banks lend to each other are, discounting month- and year-end distortions, at their highest since July 2011 and above the European Central Bank's 0.25 percent refinancing rate. With ECB chief Mario Draghi having said an unwarranted tightening in money market rates could trigger further policy action, markets will be on alert for any further rise in Eonia.


Europe's fourth-quarter earnings season kicks off on Tuesday with updates from Novozymes, SAP and Unilever. ASML, Bankinter, Logitech and Nokia are also among those reporting. Most analysts say earnings will need to improve this year if 2013 double-digit gains for equities are to be repeated. Overall, StarMine forecasts that 2013 earnings will undershoot consensus by 0.7 percent in Europe.


The dollar's fall since December's shockingly weak payroll numbers appears to have been a blip. Weekly jobless claims data on Jan. 16 suggested last month's sharp slowdown in jobs growth would be temporary and that the Federal Reserve would not alter its plans to wind down its bond-buying stimulus. Other dollars are faring less well. Weak jobs data cast doubt on expectations the Reserve Bank of Australia would not cut further. In Canada, where the local dollar has been on the slide since October, the focus will be on a Bank of Canada policy meeting. While no change in rates is expected, the language of the bank's statement will determine whether the loonie has further to fall.


Chinese fourth quarter 2013 GDP, industrial output, retail sales and house prices will set the tone for Asian equity and currency trading early next week. In other emerging markets, politics are still complicating the picture in Thailand and Turkey. Thai government officials' comments about "taking back the capital" appear to mark a hardening of their stance against protesters and could see a further escalation in tensions. The market will focus on the central bank's views on the impact the turmoil is having on the economy at its policy meeting. Turkey's central bank also meets, with expectations growing that it will throw in the towel and raise rates by 100 basis points.

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The following are five big themes likely to dominate the thinking of investors and traders in the coming week.
Friday, 17 January 2014 11:21 AM
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