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 fourth quarter gets underway on Monday, the time of year when investors hope things quieten down and allow them to lock in the profits they’ve accrued throughout the year. That’s the theory, but in actual fact they’ll be acutely aware of the potential for turbulence.
Trade wars, emerging markets, liquidity, U.S. interest rates, the surging dollar - they are all real and present dangers. On top of that, Italian politics could get messier, throwing the euro zone’s third largest economy (and largest debtor) into deeper financial uncertainty. That seems to be playing out already. And as of next week the European Central Bank will cut back bond purchases and end them altogether by end-year.
It was a mixed Q3 for investors. Standouts were the S&P 500 and developed equities in general, lifting global stocks 4 percent. Not bad, but if you have been on the right side of oil since the start of the year you’ll be up a juicy 22 percent. Cash that in now, or bet on the rally continuing closer toward $100 a barrel?
Conversely, investors could be tempted back into Q3’s poorest performing markets: U.S. Treasuries, emerging markets, Chinese equities, copper and gold.
*ANALYSIS-Dearth of equity keeps stock market bull alive
*COLUMN-Risks of global dollar shortage are rising: McGeever
*ANALYSIS-Emerging market currency crisis could lead to broader economic trouble
GRAPHIC: Q3 winners & losers - reut.rs/2ImJwhn
After the U.S. economy added 201,000 jobs in August, another 188,000 were likely created in September, thanks to a broad-based economic expansion fueled by tax cuts and consumer and business spending.
Next Friday’s update on the U.S. employment situation should show unemployment rates dropping back to 18-year lows of 3.8 percent. But the headline numbers hide some interesting anomalies. For instance, one area of employment recovery that has lagged is the participation rate, which is stuck near a four-decade low. As large numbers of long-term unemployed Americans opt out of the workforce, the participation rate for Americans over the age of 16 has not topped 63 percent in more than four years. It was last measured at 62.7 percent.
But a critical slice of the workforce is growing again – so-called “prime-age workers” between 25 and 54 years old. That measure has regained the 82 percent level for the first time since 2010.
The male-female mix is changing too. Before the financial crisis, the prime-age male participation rate was never below 90 percent. Today it is 88.8 percent. But the prime-age female rate is up and at 75.3 percent is just two percentage points below record highs from 2000.
*U.S. job growth surges; annual wage gain largest since 2009
*U.S. weekly jobless claims fall as labor market strength continues
GRAPHIC: U.S. workforce participation - reut.rs/2OjJpZk
A brief respite from market-moving Brexit headlines will almost certainly end next week for sterling traders, as Britain’s ruling Conservative Party kicks off its annual conference. Running from Sunday to Wednesday, the widely-watched event could prove a make-or-break moment for Prime Minister Theresa May.
May is seeking to heal divisions within her party over her proposals for a trade agreement with the European Union.
May warned last week that talks with the EU had reached an impasse, sending sterling to its biggest one-day loss since 2016. But the pound has since limped higher, with the rhetoric from both London and Brussels more accommodating, May ruling out a snap election and traders confident a last-minute deal is within reach before Britain leaves on March 29, 2019.
Investors will be watching to see whether May can face down hardline Brexiteers in her party and form a united front before the final stages of EU-UK talks. Sterling is trading near $1.31 GBP=D3, with the prospect for a major rally or slide contingent on clinching a Brexit deal.
-Snap election not in UK’s interest during Brexit talks -PM May
-Sterling dips but Brexit hopes keep pound supported
GRAPHIC: Sterling and Brexit headlines - reut.rs/2OdZK1C
The Paris auto show, or Mondial de l’Automobile, kicks off on Tuesday. But the high-profile biennial gathering where carmakers show off their newest innovations will take place this year under a cloud - that of tariff threats and pressure to adapt to an electric future.
For all the polish and pizzazz, there are dents under the bonnet. The Paris show will not feature Volkswagen’s biggest brand, VW, likely for cost-cutting reasons. Some other big names - Ford, PSA Group’s Opel, Nissan Motor, Mazda and Volvo - will also be sitting this one out.
A profit warning from BMW has highlighted industry challenges. The company blamed trade wars and price competition following new emissions rules for the dent in its profits.
Threats of trade levies have also hit share valuations in the auto sector globally. This should remain the case until Washington decides on import tariffs - possibly in October.
*BMW warns on profit, blames price and trade wars
*Volkswagen’s biggest brand to by-pass Paris auto show
*Carmakers trigger Brexit contingency plans as no deal uncertainty grows
GRAPHIC: World autos valuations - reut.rs/2Io2cgK
India has moved swiftly from being a favored and sheltered safe-haven to becoming Asia’s worst performing market. One of its major shadow banks is in distress, money markets are in turmoil, oil prices have topped $80-a-barrel and the rupee is hitting record lows as it adds to this year’s 12 percent loss. But only a small majority of economists expects the Reserve Bank of India to raise rates on Oct 5.
All those problems will make the RBI careful about which battles it wants to pick. After all inflation is subdued, stock markets are well off record highs and bonds have sold off.
The RBI has been keeping a tight rein on short-term cash conditions with an eye on the currency and inflation, the latter being its prime mandate. Yet, with national elections due next year, the RBI can’t afford to let the funding crunches from India’s massive non-banking sector hit a fast-growing economy either.
*Cash rules relaxed for Indian banks as credit crunch fears persist –
*India’s shadow banking scare could derail its robust growth story –
*POLL-With an eye on faltering rupee, RBI to raise rates next week –
GRAPHIC: India juggles rupee, shadow bank troubles and growth - reut.rs/2IpZPdi
Reporting by Daniel Burns in New York, Vidya Ranganathan in Singapore; Jamie McGeever, Tommy Wilkes and Helen Reid in London; compiled by Sujata Rao; editing by Andrew Heavens