World markets themes for the week ahead

LONDON: Following are big themes likely to dominate the thinking of investors and traders in the coming week and the Reuters stories related to them. The RBI, the rupee, rates and reserves

India has moved swiftly from being a favoured 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 per cent loss. But only a small majority of economists expects the Reserve Bank of India to raise rates on October 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 nonbanking sector hit a fast-growing economy either. If not 4Q

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, US interest rates, the surging dollar - they are all real and present dangers.

On top of that, Italian politics could get messier, throwing the eurozone’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 endyear.

It was a mixed 3Q for investors. Standouts were the S&P 500 and developed equities in general, lifting global stocks four per cent. 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 per cent.

Cash that in now, or bet on the rally continuing closer towards $100 a barrel?

Conversely, investors could be tempted back into Q3’s poorest performing markets: US Treasuries, emerging markets, Chinese equities, copper and gold. Job lot

After the US economy added 201,000 jobs in August, another 188,000 were likely created in September, thanks to a broad-based economic expansion fuelled by tax cuts and consumer and business spending.

Next Friday’s update on the US employment situation should show unemployment rates dropping back to 18-year lows of 3.8 per cent. 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 per cent in more than four years. It was last measured at 62.7 per cent.

But a critical slice of the workforce is growing again – socalled ‘prime-age workers’ between 25 and 54 years old. That measure has regained the 82 per cent 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 per cent.

Today it is 88.8 per cent. But the prime-age female rate is up and at 75.3 per cent is just two per centage points below record highs from 2000. — Reuters