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/HELTER SKELTERThe past weeks stock market slide has wiped $2.6 trillion off the value of global equity.
The selloff in itself surprised no one; more interesting was the suddenness and the apparent lack of triggers.It was a milestone week.
The SP 500 lost more than 5 percent in two days, the Nasdaqs fall on Wednesday was its biggest since 2011, Chinas slide took its stocks 30 percent off January peaks, and Taiwans stock futures suffered their worst day since 2000.The warning signs are long-standing: a tightening Fed, rising dollar, escalating trade war, slowing China and fragile emerging markets.
Add in renewed doubts over Italys debt and Donald Trumps attacks on the loco Fed, and you can see why some of the market froth came off.The million (or trillion) dollar question now is: is this the major correction many people have been flagging for months, if not years Or not The coming week may show.2/UN-FAIRThousands of Chinese exporters descend on the Canton Trade Fair in the coming week to strike deals, sell their wares and, this year, whine about the heavy tariffs the Trump administration has imposed on their United States sales.At Aprils fair, exporters didnt seem unduly concerned about trade wars.
Latest data also showed healthy exports that pushed Chinas trade surplus with the United States to another record high.
Yuan weakness probably helped the currency is down 10 percent since March when the first Sino-United States salvos were fired.What lies ahead is the United States Treasurys semi-annual report on currency manipulators.
China has for years dodged being labeled one and media reports suggest its not been labeled this time either, even if the yuan is approaching the 7-per-dollar mark.Calling out Beijing as a currency manipulator may give Washington more firepower in its trade dispute.
But there is also the issue of the $1.17 trillion in United States Treasury bonds held by China.
Selling those holdings might mean short-term losses for China but could bring a fresh jump in bond yields and an even higher dollar.
That would in turn put United States exports at a further disadvantage against Chinese, and more generally, global goods and services.3/NO QUARTER GIVEN Investors have punished United States bank shares this year, with the SP500 banking index down 5 percent year-to-date versus a 2 percent gain for the broader market.
So sector giants JPMorgan, Bank of America, Bank of New York Mellon, Goldman Sachs, and Morgan Stanley will need some pretty strong Q3 earnings if they have any hope of changing that negative view.They are indeed expected to deliver 26 percent earnings growth, outstripping the 21.4 percent predicted for the SP500 according to I/B/E/S Refinitiv.
But that may not be enough.United States longer-dated bond yields have finally started rising a positive for banks.
But as the Fed raises interest rates, banks will be pressured to pass on those higher rates to depositors.
And loan growth remains sluggish, seemingly impervious to big recent tax cuts, and a worry if the economy indeed slows down next year as many expect.Share performance may boil down to valuation.
For the next 12 months, Goldman Sachs appears the cheapest, with investors paying $8.90 for every dollar in expected earnings while they pay $11.90 for Bank of New York Mellon.
The latter, unsurprisingly, is the worst performing stock over the last two years in this group of United States banks.4/A PLUMMET AFTER THE SUMMITSterling has strengthened 2 percent versus the dollar over the last fortnight, supported by expectations that an EU leaders summit in Brussels on Oct.
18 will yield a deal on Brexit for British Prime Minister Theresa May.
If the outcome is positive, investors could unwind more of their short sterling bets, setting the currency firmly on the road to recovery.But with less than six months to go before Britain leaves the bloc, fears about the Irish border issue will still hound the pound.
Northern Irelands DUP, the party May depends on for her parliamentary majority, has threatened to withdraw backing for next years UK budget should any deal split Northern Ireland from the British mainland.
That would effectively be a vote on Mays administration.Reuters polls forecast sterling at $1.37 six months after Brexit, up from $1.32 at present.
But the DUP could well scupper that rally if it triggers new elections.
For now, though, currency markets appear priced for a deal being finalised next week.
A setback could inflict a lot of pain.5/SUBMISSION TIMEItalys budget standoff with Brussels will come to a head on Monday when it submits its 2019 spending plans.Already, Italys combative budget plan which proposes running budget deficits far higher than previously agreed with the EU has driven government bond yields to their highest in four years.The extent to which the anti-establishment government in Rome tests EU authorities patience will further affect bond spreads, particularly with ratings reviews from Moodys and SP Global due later this month.Both agencies rate Italy two notches above junk so any downgrade will puts the euro zones third largest economy at greater risk of losing investment grade status and the billions of euros of fund flows that go with it.Not that the saga ends on Monday.
The EU then has a week to identify any serious non-compliance and two weeks to decide if it will reject the budget altogether.But the first step is a significant one, and likely to give investors an idea of whether Italy and the EU can work together to come up with a solution.