London - It would be nice to think that with the eurozone having come up with a plan to tackle its debt crisis, investors could focus in the coming week on more than another meeting of global leaders.
Not so.
Key central bank meetings, corporate earnings reports and
seriously important economic data will have to compete with a Group of Seven
summit at the end of the week in the southern French resort town of Cannes.
As one keen observer of financial markets put it: "Another week, another summit."
G20 meetings have become increasingly important as the economic clout of developed economies wanes and that of the likes of China, India and Brazil increases.
The coming week's meeting will essentially be watched for coordinated efforts or pledges to help stabilise world financial markets, which have been battered this year by the eurozone debt crisis and a slowing world economy.
"The key is just a sense that the policymakers are
aware of the challenges that the world economy faces, which are profound, and
have the conviction to enact the right policies to deal with this," said
Chris Cheetham, chief investment officer of HSBC Global Asset Management.
A more specific issue, however, will be the extent to which
China and other countries with large fiscal surpluses are willing to fund the
eurozone's rescue fund, the European Financial Stability Facility (EFSF).
The past week's meeting of eurozone leaders left open to a
great extent how the fund was to increase its firepower, arguably the most
important part of the agreement.
It has been taken as implicit that China et al will be
brought in.
China has sought to lower expectations by insisting the
purchase of EFSF bonds is not on the G20 summit agenda.
Crises, however, have a long history of tearing up well
thought-out agendas.
Rally, rally
How much satisfaction investors get from the G20 may decide
just how financial markets perform at the end of the year, a period which
historically sees stock markets rallying.
It may go against what many people would expect, but global stocks could quite easily end the year with relatively modest gains.
MSCI's developed market stocks index needs only a little
more than 2% to break even for the year - a good day's trading.
Most of the major losses have been on volatile emerging
markets, but being 13% or so in the hole for the year to date is not a rout,
particularly when a solid two-month rally could cut deeply into those losses.
Investors, for their part, have begun putting more risk, eg
stocks, in their portfolios, albeit cautiously. UK firm Schroders provides a
typical example.
"We have increased our exposure to equities and credit
over October in the expectation of improved market performance into year
end," Johanna Kyrklund, its head of multi-asset investments, said in a
note.
"In the short term, US economic data have improved and
for the time being the European authorities have kicked the can a little
further down the road. However, we remain vigilant."
Just how far along the US recovery from its slump has come
will be tested next Friday in the October jobs report.
Employment usually lags. But it is crucial to consumer
sentiment, house prices, retail sales and a broad range of major underlying
data.
Rates and earnings
In the meantime, central bank rune-readers will have an interesting time on Thursday, when a new European Central Bank (ECB) president, Mario Draghi, holds his first post-policy meeting news conference.
Jean-Claude Trichet has his last day as ECB president on
Monday.
The US Federal Reserve also meets, on Wednesday. European
rate cuts are in the frame, but the Fed is probably done with new liquidity
moves for now.
Investors will also be driven by the corporate earnings
season, nearing an end in the United States but heating up in Europe.
Company earnings have been the one bright spot this year for
many investors.
The coming week brings Barclays, ING, BNP Paribas, Credit
Suisse, Royal Bank of Scotland and Commerzbank to give a taste of the state of
European banks.
On Wall Street, the latest data from Thomson Reuters
Proprietary Research shows that with 31% of S&P 500 companies having
reported, estimated and actual Q3 earnings per share are up 14.8%.
That is less than half the year-ago Q3 growth of 31.2%, but
better than the 12.1% of this year's Q2.
And they did it without a summit.