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. Midterm madness

If the last five US midterm elections are anything to go by, investors should be long US stocks on Tuesday to make the most of a knee-jerk upwards move - no matter what the outcome.

Equities have risen the day after each of the past five midterms.

During President Barack Obama's second term in November 2014, stocks rose 0.6 per cent when Republicans made broad gains and took control of the Senate. Energy stocks got a particular boost on hopes of approvals for pipelines.

Obama's first- term midterm elections also saw stocks grind higher after Republicans took control of the House.

Going back to 2006 during President George W Bush's second term, stocks nudged 0.2 per cent up when Democrats took control of the house; while in 2002 stocks rose 0.9 per cent.

A Republican win this time around, that allows them to retain total control of Congress, could boost stocks as it would increase the chances of more tax reform and further de-regulation.

Still, a Democratic takeover of the House may not significantly shake the market if it has effectively been priced in - offering the prospect of gridlock and stability in policy. Yuan love?

Is there light at the end of the trade war tunnel? US President Donald Trump and Chinese President Xi Jinping both seemed optimistic about resolving their bitter trade dispute after Thursday's phone discussion and ahead of a highstakes meeting at the end of November in Argentina.

Hopes for a possible deal propelled the yuan away from the psychological threshold of seven to the dollar, for now.

The currency had been under pressure amid worries over slowing growth in the world's second largest economy.

Despitearaftofstimulusmeasures announced by Beijing having already brightened investors' mood, the jury is still out as to whether the yuan could crash through that key level, according to a Reuters poll.

If it does, consensus predicts the move to be gradual unless economic conditions in China deteriorate further. Trade data out this week will surely be scoured for clues on that. Great expectations

As the European earnings season continues to rumble on, analysts are scratching their heads as to what exactly triggered a sharp selloff across global equity markets last month, which seems to have hit price performance but left earnings expectations largely intact.

Some say investors were just pricing in the fact US stocks aren't going to be able to provide 20 per cent earnings growth every quarter - and taking prices down from their exuberant record high levels.

If they're beginning to look for alternatives to the US that still have some earnings improvement to deliver, Europe is starting to look viable.

Analysts expect quarterly yearon-year earnings growth in Europe to edge above those in the US in 2019.

Yet in the short-term, investors still have a few hurdles to jump - most notably Italian banks' earnings this week which could deepen the gloom around lenders' ability to withstand the steep sell-off in government bonds. November pain

Sterling's rally this week was the second-biggest of the year. Fuelled by reports that the UK and the EU have made progress on a deal to give London basic access to EU markets after Brexit and a rally in global stocks, traders lost no time in snapping up the heavily shorted currency. — Reuters