Five world markets themes to watch out for this week

LONDON: Following are five big themes likely to dominate thinking of investors and traders this week, and the scheduled events and Reuters stories related to them.

1) Coming Closer

The rumpus over the U.S. budget and the debt ceiling is certain to dominate financial markets in the coming week. As the mid-October deadline for lifting the borrowing cap approaches, tensions already apparent in U.S. short-term bills and credit default swaps may ratchet higher. If a deal is reached to end the government shutdown, and a debt deal looks more likely, that may be a green light for U.S. stocks, which have lagged Europe recently, to rally. Investor focus may then switch back to when the Federal Reserve might begin to wind down its monetary stimulus.

* Latest FOMC minutes due Wednesday

* U.S. Treasury sells three-year bonds on Tuesday, 10-year bonds on Wednesday

* U.S. default seems unthinkable but investors have options

* Money market funds in firing line as U.S. fears creep up

* Washington debt row hits European stocks with U.S. tilt

2) Political Risk

Italian 10-year government bond yields seem to have hit the buffers around 4.3 percent and are still trading above Spanish equivalents, reflecting lingering market apprehension about how strong a hand Prime Minister Enrico Letta has been dealt by the ructions in Silvio Berlusconi's party. Market focus in the coming week will be on how speedily Letta moves to take advantage of a weakened Berlusconi to push through electoral reforms that could signal a more decisive push for fiscal changes. The extent to which sentiment has turned could be reflected in Italian bond auctions next Friday. Recent auctions have seen slack demand and higher funding costs.

* Calm markets peer beyond U.S., Italian political storms

* Italy sells bonds on Friday

* Germany sells five-year bonds on Wednesday

3) How Much Stronger?

One immediate consequence of the partial shutdown of the U.S. government is pressure on the dollar that has helped push the euro to a two-year high on a trade-weighted basis. This is causing headaches for euro zone exporters who face the dilemma of whether to buy at current elevated levels or risk waiting for the euro to lose steam. The fact European Central Bank chief Mario Draghi pointedly declined to take the currency down after the bank's latest policy meeting has made some in financial markets think the euro is bound for $1.40.

* Strong euro messing with ECB's loose monetary policy

* FX COLUMN-Euro zone exporters face dilemma over strong euro

* ECB's Draghi speaks in Cambridge, Mass., on Wednesday

4) Earnings Challenge

The U.S. third-quarter earnings season kicks off with aluminium producer Alcoa first out of the traps. Earnings estimates for companies on both sides of the Atlantic have been cut, with those for European firms downgraded the most. In Europe, where the results season begins in a couple of weeks, many investors had been banking on good third-quarter numbers after a lacklustre first half so sub-par earnings could knock a whole in the region's so far healthy stock market gains.

* Alcoa third-quarter earnings due on Tuesday

* JPMorgan, Wells Fargo earnings due on Wednesday

* Alcoa could start earnings season with a whimper

* Subdued earnings threaten European equity rally

* European cheap stocks set for long catch-up rally

5) Health Check

The International Monetary Fund's annual meetings, which begin in Washington, are a chance to take the temperature of the global economy. In many areas, growth is still modest but at least showing signs of recovery. Accelerated expansion in the Chinese services sector indicates the world's second-largest economy is picking up. A similar survey in Europe showed growth spreading to some of the previously lagging countries. The IMF has already warned that failure to lift the U.S. debt ceiling could harm the world economy.

US debt crisis can cause global financial turmoil: IMF

WASHINGTON: The IMF today warned that an imminent debt default by the US due to the government shutdown would result in disruptions in financial markets and could possibly trigger global economic turmoil.

"Failure to lift the debt ceiling would be a major event,"Olivier Blanchard, IMF's chief economist, said at a news conference at its headquarters here.

The top International Monetary Fund official warned that the failure to raise the debt ceiling -- that would result in the US defaulting on its international obligations -- would have a long term adverse impact on the global economy and would have major consequences in the years to come.

IMF say global economy healthier, but still weak

WASHINGTON: The International Monetary Fund expressed guarded optimism about the state of the global economy on Tuesday, even as it trimmed its forecasts for output and warned about the catastrophic impact of a potential U.S. debt default.

In its latest global economic snapshot, the IMF cut its world growth forecasts for the sixth straight time in less than two years, saying a stronger performance in most advanced economies would fail to make up for a more sluggish expansion in the developing world.

Prospects for emerging markets, long the engine of the global recovery, have dimmed somewhat with both structural and cyclical factors at play, the IMF said.