The degree to which financial markets are on edge about global imbalances and their impact on asset flows was writ large in the past week on currency markets. Scanning its foreign exchange platforms, Deutsche bank noted that some 30 percent of short dollar positions were removed on Monday, in the sudden belief that the greenback would rise, only for a good third of them to come back on Tuesday.
The trigger was China's surprise rate hike and fears that a new tightening cycle was about to begin. But all that is part of major uncertainty surrounding the G20 meeting under way in South Korea with its ongoing row about currency rates.
Next week is almost certainly going to be dominated by whatever the Group of 20 finance ministers agree over the weekend, where the United States has been struggling to push others into a deal to commit emerging markets to cut their current account surpluses and allow their currencies to rise.
On markets, it is likely only to be matched in impact by the continuing corporate earnings season, which has been relatively strong so far.
What is decided in Korea - and it may be a classic diplomatic fudge, leaving the issue to G20 heads of government later in the year - could have broad implications on assets.
"Investors are hoping for some guidance about where the dollar is heading next," said Alessandro Bee, economist at Bank Sarasin in Zurich. The prospect of a weaker dollar and higher emerging market currencies, as well as economic growth differentials, have already triggered massive investment flows into emerging markets.
Investors poured a net $3.76 billion into emerging market equity funds tracked by EPFR Global in the latest week, lifting year-to-date inflows above 2009's full year record-breaking $44.2 billion.
They also committed a further $1.4 billion into emerging market bond funds. Conversely, the prospect of more asset-buying by the US Federal Reserve in a new quantitative easing programme has helped lift the US S&P 500 index as much as 13 percent since late August. Some of that would be put at risk if QE plans were trimmed back a bit as a result of some kind of G20 pact.
In Japan, meanwhile, a lot of the Nikkei's underperformance has to do with exporters struggling with a strong yen.
While a lot of attention has been paid to currency tensions, however, investors have been encouraged to buy riskier assets by a relatively robust US earnings season.
There have been a few disappointments, but on the whole companies have been coming in above expectations and analysts have been lifting their projections for the quarter.
Thomson Reuters Proprietary Research estimates that with 139 companies in the S&P 500 having reported, a whopping 83 percent have surprised on the upside.
This has taken blended earnings growth expectations for the third quarter - actual plus estimated earnings yet be reported - to 27.4 percent.
In turn, that reflects a steady increase in expectation for the quarter from 21.6 percent at the beginning of the year.
But investors are still cautious about the future. "Earnings estimates are well supported, however, one should view this in the medium term context," said Tammo Greetfeld, equity strategist at UniCredit. "The declining trend of leading indicators points to a deterioration of 2011 earnings trend going forward."
According to Thomson Reuters research, analysts are expecting a bigger jump in earnings for the fourth quarter, some 31.7 percent, but a sharp slowdown in growth in early 2011 to 11.5 percent.
US earnings in the coming week include Bristol-Myers Squibb, Ford, Dupont, Procter & Gamble and Microsoft. Meanwhile, the season heats up in Europe, with earnings from the likes of Deutsche Bank, Volkeswagen and Royal Dutch Shell.
Otherwise in the coming week, investors of different hues will be focused on US and UK GDP reports, the second round of the Brazilian presidential election, budgets in Turkey and South Africa, and the fast-approaching US mid-term elections.
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