(Repeats item moved on Friday; no change to text)
LONDON, Aug 11 (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/ JAW-JAW, SELL-SELL
An unnerving war of words between Washington and Pyongyang has pushed the cost of insuring South Korean debt against default to its highest in 1 1/2 years and the expected volatility of the Korean won is creeping higher. Gauges of market risk have been rising but are far off their peaks as the expectation still is that diplomacy will prevail and prevent a nuclear conflict. But investors are increasingly jittery and some are wondering what other threats to the benign environment in markets may be lurking below the radar. North Korea warns of nuclear war; Trump says weapons ‘locked and loaded’ In Asia financial markets, the fear indicators still send a buy signal Trump stumps South Korean markets more than any missile tests
Immediate winners as tension ratcheted higher over the Korean peninsula were U.S. defence industry stocks. Raytheon, maker of the Patriot anti-missile system, notched up an 8 percent gain for the month on the day of President Trump’s “fire and fury” warning, slightly outperforming Lockheed Martin, the Pentagon’s No. 1 weapons supplier. Overall, defence stocks on the Dow Jones Industrial Average are up about 4.3 percent, more than twice the gains of the wider index. BUZZ-U.S. defense stocks fire up after Trump warns North Korea Lack of real-world testing raises doubts on U.S. missile defenses
The dollar’s nearly 9 percent fall this year has exposed a stark divergence of fortunes between U.S. companies with high international sales and those that rely on domestic revenues. Goldman Sachs’s basket of U.S. stocks with high domestic sales (which includes Wells Fargo, Charter Communications and Altria) is up 4 percent so far this year, significantly underperforming the S&P’s 9 percent gain. Their index of stocks with high international sales (including McDonald’s, Tiffany, Qualcomm, NVIDIA and Boeing), has forged ahead, up 14 percent. Among S&P stocks, almost 30 percent of total revenues are generated overseas, according to Goldman. Earnings season is wrapping up with S&P earnings estimated to increase 11.9 percent - which would mark the first consecutive increase over 10 percent since the second and third quarters of 2011. An above-average number of companies are beating analyst expectations, according to Thomson Reuters I/B/E/S data. Still, data from market research platform Sentieo shows that dollar mentions in earnings were on balance weighted negative in the month to Aug. 9, with 388 transcripts during the month seemingly mentioning a foreign exchange effect in a positive way and 455 with a negative bias. Strong U.S. corporate earnings to continue as dollar remains weak BUZZ-Small caps clipped by dollar dip
Talks in the coming week between the United States, Canada and Mexico on updating/renegotiating/ditching (depending on who’s talking) the North America Free Trade Agreement come at something of a crossroads for world trade. Trump’s campaign pledge to renegotiate or ditch NAFTA raised concerns in many countries about a re-emergence of protectionism and an unwinding of the globalisation that supporters say has lifted millions of people out of poverty. The latest trade figures from China, Germany and Britain were all much weaker than forecast, raising worries over the level of demand in major economies as central banks take steps towards tighter monetary policy. What happens next may depend on whether the dollar stays weak. Most trade is in dollars and a weaker U.S. currency makes financing such operations more attractive. Oxford Economics has plotted the inverse relationship between the dollar and world trade and finds that trade is growing at its fastest rate since 2010. BREAKINGVIEWS-Trump fuzziness gives NAFTA mediators wiggle room China July exports, imports weaker than expected, cloud global outlook Drop in German trade activity feeds into global stimulus debate COLUMN-Global Trade: not so bleak if dollar weak
The euro zone economy outperformed both the United States and Britain in the first half of the year. Economists polled by Reuters expect growth of 2.0 percent in 2017. But Germany’s slowing trade has raised questions about the strength of demand in leading economies just as central banks consider scaling back their stimulus programmes. Gross domestic product data from across the bloc due in the coming week will be closely watched. German flash second-quarter growth is expected to pick up to 0.7 percent from 0.6 percent in the first three months of the year. Overall, euro zone economic activity is forecast to have expanded by 0.6 percent, the same as in Q1. Italy is picking up - its Q1 GDP growth was revised up to 0.4 percent from an initial 0.2 percent and that strength is expected to have been maintained in the three months to end-June.
Reporting by Marius Zaharia in SINGAPORE, Megan Davies and Caroline Valetkevich in NEW YORK, Nigel Stephenson and Jamie McGeever in LONDON Editing by Jeremy Gaunt, Larry King