Five world markets themes next week

LONDON (Reuters) - Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them.

1. EYE ON CENTRAL BANKS: Investors will be on the lookout for any further signals on quantitative easing when the European Central Bank and the Bank of England announce their decisions on Thursday. Analysts see the ECB leaving rates on hold but pushing ahead with and possibly extending a plan to buy up to 60 billion euros in covered bonds. The focus will also be on growth forecasts for the next year and the message they send about the pace of any recovery. Less is expected immediately from the BoE, whose members voted unanimously to extend QE by 50 billion pounds in May, but cenbank watchers will be watching for indications they will go further, later.

2. COMMODITIES SUPERCYCLE, CYCLICAL SURGE: Oil prices are nearly double their four-year low set in December and the Baltic Dry Index, which tracks rates to ship dry commodities, has risen more than 300 percent since the start of the year. Coupled with a weakening dollar, investors might be bracing for the return of the supercycle in commodities. The resultant inflationary pressures could push investors away from government bonds and into the arms of equities: cyclical shares have surged this year and defensives have been driven out of favor. In Europe, mining stocks have risen by a red-hot 42 percent, while healthcare, telecoms and utilities are among the few sectors in the red. Will the commodity surge drive greater risk-taking?

3. EMERGING DISCONNECT, POLITICAL RISK: High-yielding emerging market currencies remain weak, weighed down by poor domestic growth prospects even as emerging equities rise along with their developed market peers, buoyed by hopes of a global economic recovery. The disconnect is likely to persist with governments, particularly in emerging Europe, looking likely to lower interest rates further. The continued rise in emerging equities indicates that markets have so far taken North Korea's nuclear test and missile launch in their stride. But the hermit state is slowly upping the ante, dumping the truce that ended the Korean war and pushing South Korea and the United States to raise the military alert level for the peninsula. While this could well be pure nuclear brinkmanship, the atmosphere is fraught and could bring political risk firmly back into the spotlight at a time when the pace of a stock market rally has cooled slightly.

4. IN SEARCH OF MORE POSITIVE DATA: Green shoots have been popping up at an encouraging rate, with consumer confidence and home sales data in the United States, and improved Euro zone economic sentiment being the latest signs that a downturn may not be as steep as many originally feared. The week provides more key tests for this hypothesis: U.S. non-farm payrolls, core personal consumption expenditure, factory orders and ISM data. Jobs are particularly in focus with General Motors' bailout looming.

5. TREASURY YIELDS: A sharp rise in Treasury yields driven by worries over a record U.S. budget deficit has pushed the yield curve to its steepest on record, and Treasuries yielded more than euro zone government bonds for the first time in seven months. While surging yields could threaten the equities rally as businesses and consumers fret about increased borrowing costs, auctions attracted strong buying from foreign central banks, putting a floor under the dollar. U.S. Treasury Secretary Geithner's trip to China this weekend will be under the scanner given that China is the biggest holder of U.S. debt.

(Compiled by Sitaraman Shankar)