Five world market themes next week

LONDON (BestGrowthStock) – 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. THE NEXT WEAKEST LINKS

Sovereign risks remain high with Greece still in investors’ crosshairs as they wait for concrete action on its planned budget deficit cuts while bond market vigilantes are quick to punish peers who are skittish about taking unpopular but needed fiscal reform measures. Premiums for the next perceived weakest links in the euro zone area, especially Portugal, are set to remain near record highs with the spreading fallout keeping the euro on the back foot versus the dollar. Concern is also growing over how long core euro zone sovereign markets will be immune to the ill wind buffeting peripheral markets as countries such as France with its growing debt pile come under increasing scrutiny.

2. SOFTLY, SOFTLY TO THE EXIT

Decisions by the Bank of England and the European Central Bank to hold interest rates steady suggests they are still cautious about implementing exit strategies. But even as the euro zone grapples with fiscal problems, the ECB has said it will soon decide on whether to continue phasing out liquidity measures. Meanwhile, the BoE has paused quantitative easing while keeping open the door to more stimulus if needed. The BoE’s quarterly inflation report, due on February 10, will be in focus as the central bank will have to spell out how it will harness risks of rising prices– its key mandate — while the economy remains sluggish. Markets will be looking for any hints into how exit strategies will be enacted while conditions for tightening still have not been met.

3. IT’S NOT JUST THE ECONOMY

The still high volatility of Greek government bonds after the European Union backed Greece’s deficit-cutting plans has highlighted again that actions are more important than words in tackling unhealthy fiscal deficits. It also highlights the high level of political risk currently in markets. A series of strikes in coming weeks will challenge the Athens government’s resolve to implement its plans and the bond market is likely to punish any backsliding. The Spanish government faces a rough ride from trade unions and may face a confidence vote in parliament. In Britain, opinion polls ahead of a general election due by June are able to move sterling. Perhaps the biggest political uncertainty is in the United States since the Democrats lost in Massachusetts. Arguably, the result makes both healthcare reform and limits on bank risk-taking — two of the biggest sources of uncertainty in markets at the moment — more difficult to achieve. So for now, it’s the economy but much more besides.

4. REVENUE EYED

Investors have so far been disappointed with this quarterly earnings season as companies have not shown their ability to generate much revenue growth even though they have kept the costs down and the global economy is on the mend. Results from UBS, Credit Suisse, Peugeot, Renault, Molson Coors, Philip Morris, Pepsico, Coca-Cola, Alcatel-Lucent, Danone, Diageo and Rio Tinto will give investors further indication whether this is a trend, and if it is, equity markets will face serious a hurdle after last year’s stellar performance.

5. MODEST AND UNEVEN?

U.S. payrolls unexpectedly fell on Friday but unemployment hit a five-month low and some analysts saw the unemployment rate bolstering the trend of gradual economic U.S. recovery evident in strong ISM manufacturing and fourth-quarter GDP data. In the euro zone, ECB President Trichet has said, recovery will be modest and uneven. Flash fourth-quarter GDP numbers due on February 12 will show how far this is the case. Further evidence of the health of the global economy may emerge from company earnings figures due in the coming week from, among others, Renault, PepsiCo, Diageo and Philip Morris.

Stock Market Investing

(Compiled by Nigel Stephenson, editing by Mike Peacock)

Five world market themes next week