TAKE A LOOK-Five world markets themes in the coming week
LONDON, Oct 26 (Reuters) - Following are five big themes likely to dominate the thinking of investors and traders in the coming week and the Reuters stories related to them.
1/ ACCIDENTS CAN STILL HAPPEN
Global equities have ceded much of the gains they made in the weeks after the ECB detailed its bond-buying plans on Sept. 6 but peripheral euro zone bonds are proving more resilient given the chances of such buying being triggered eventually. While the log correlation between Spanish bond prices and world stocks has eased from the near-lockstep levels seen at the end of August, it is still high, at nearly 0.7. Spain's bailout intentions therefore still have plenty of scope to trigger moves across financial assets. But until there is more clarity on the issue, earnings and economic data (such as the non-farm payrolls report in the coming week) will have scope to generate a greater divergence between the performance of stocks and peripheral euro zone bonds.
> Latest state of play on global markets Asset performance in 2012: http://link.reuters.com/muc46s
> Santander urges Spain to seek bailout
> Europe's top banks eye early ECB repayment
2/ PAY IT BACK
Shorting Spanish debt is expensive and impending regulation has only compounded the problem for those who might have wanted to pursue this strategy. The European Union's ban on shorting government debt or holding CDS without having an underlying position to hedge comes into force on Nov. 1. There has already been a drop in net notional CDS volumes and some analysts say the ban has also had a part to play in the recent resilience of euro zone peripheral debt and the narrowing in CDS spreads. Those who wanted to bet against the Spanish or other peripheral sovereigns may, however, just seek proxies in the corporate credit market - possibly among banks.
> Liquidity falls as ``naked'' CDS ban approaches
> Fallout from EU ban on naked CDS positions
> Markit adapts CDS indices before EU ban
Euro zone bond auctions in the coming fortnight could prove an easier ride for French, Spanish and Italian debt management offices given coupon and redemption payments that are due to be paid out to investors in the coming weeks. Shorter-dated Spanish and Italian bond sales have benefited most from the prospect of potential ECB buying due to the central bank's intention of focusing on maturities of up to three years. Given indications that foreign appetite for Spanish and Italian bonds may be picking up, analysts will be parsing auction results to see if longer maturities are also finding favour with investors. With Spain yet to issue a new 10-year benchmark bond this year, the maturities that Treasuries choose to offer in the coming weeks will show how far along the curve their confidence stretches.
> Spanish Treasury chief interview on funding
> Spanish bonds regain favour among investors
> Graphic on euro zone governments' funding progress:
> Euro zone government supply outlook
4/ LITTLE TRIGGERS
The gravitational force of a less-than-stellar U.S. Q3 company results season is beginning to exert itself on world stocks. U.S. earnings per share have held up fairly well, thanks in part to share buyback plans by cash-rich companies. However, U.S. firms' revenues are lagging. European earnings are just kicking off and the beats/misses ratio is finely balanced so far. Profit warnings and gloomy outlooks are becoming a regular feature on both sides of the Atlantic. While central bank stimulus and ECB bond-buying plans have cushioned global equity markets, prices are not as cheap as they were relative to earnings before ECB chief Draghi pledged to do whatever it took to preserve the euro. And if sluggish economic activity in Europe forces downward revisions to forward earnings, they will look less attractive still.
> U.S. Q3 2012 earnings graphic: http://link.reuters.com/vyx43t
> Previews for big firms' Q3 results
> Latest equity market reports on U.S., Europe
> Daily earnings hits and misses
5/ ON THE WAY DOWN
Demand has picked up recently for three-month options that offer protection against further yen losses against the dollar. The latest trade data has shown why the Japanese authorities are so keen on a weaker yen, and why they would be content to see an extension of the 3 percent drop seen in the currency's nominal effective exchange rate since the beginning of September. The BOJ will have a chance to help at an Oct. 30 policy meeting, at which it is expected to opt for further monetary stimulus. Any explicit commitment to keep pumping cash into the system until the inflation rate rises to 1 percent would give traders an even more convincing reason to sell the yen.
> Preview of what the BOJ is likely to do
> Japan inflation, trade data
> Investors overexposed to risk of euro drop
> Analysis on U.S. fiscal cliff and dollar
(Reporting by Swaha Pattanaik; Editing by Susan Fenton)