By Yoruk Bahceli and Stefano Rebaudo

(Reuters) - The European Central Bank looks set to deliver another interest rate cut on Thursday it had little appetite to point to just weeks ago.

Data signal a euro zone economy in worse shape than when policymakers last met, boosting bets on speedier rate cuts than the quarterly pace June and September cuts suggested.

"If the ECB does not cut in October, the market will think that the central bank is behind the curve and potentially making a policy error," said Deutsche Bank chief European economist Mark Wall.

Here are five key questions for markets:

1/ Will the ECB cut rates this week?

All but certainly. Traders are banking on around a 90% chance of a 25 basis-point cut, a huge increase from as low as 20% when the ECB met last month.

Euro zone business activity that unexpectedly contracted in September led to a surge in October bets, as investors feared that the ECB, so far sticking to its data-dependency mantra, may not cut rates quickly enough.

Several policymakers have already made the case for an October cut. Even ECB chief Christine Lagarde has hinted at one, saying confidence in falling inflation would be reflected in the bank's decision.

2/ Is this the start of back-to-back rate cuts?

Yes, Wall Street economists reckon.

And traders are pricing in just over three cuts at the four meetings following October.

ECB policymakers, however, are not quite there yet. Centrist Finnish governor Olli Rehn has repeated the message that the pace and scale of further cuts will be decided meeting by meeting.

(Reuters) - Goldman Sachs raised China's gross domestic product forecast to 4.9% from 4.7% for 2024, according to a research note, citing the government's latest round of stimulus measures.

The move "clearly indicates that policymakers have made a turn on cyclical policy management and increased their focus on the economy," said Goldman Sachs in a research note to clients on Sunday.

Investing.com -- Earnings results and U.S. retail sales numbers will be closely watched in the week ahead for indications on the strength of the economy and what that could mean for Federal Reserve interest rates. The European Central Bank is expected to deliver another quarter point rate cut, while China will publish figures on third quarter growth. Meanwhile, oil prices look set to remain volatile and demand disruptions and elevated geopolitical tensions. Here's your look at what's happening in markets for the week ahead.

1. Q3 earnings

Earnings season got underway on Friday, with shares of JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) jumping after both banks surpassed estimates.

More big banks are due to report in the coming week, including Bank of America (NYSE:BAC) and Citigroup (NYSE:C) on Tuesday, while Netflix (NASDAQ:NFLX) is due to report after the close on Thursday.

Investors will be closely watching results from Netflix - specifically whether the streaming service is adding or losing customers and at what pace - for insights into the health of consumer spending.

Companies will need to top expectations for profit growth in their quarterly reports to support the stock market's valuation, which stands well above its historical average.

Third quarter earnings results should confirm that large-cap corporate profit growth remains solid, analysts at UBS said in a note on Friday. "Now that the Fed has started its rate-cutting cycle, the economy should get a further boost from lower interest rates on things like credit card debt and business loans."

2. U.S. data, Fedspeak

Markets will get another update on the health of the U.S. consumer on Thursday, with investors hoping retail sales data will offer further insight into an economy that is turning out to be far more resilient than many had expected.

Recent stronger-than-forecast labour market data prompted investors to reevaluate bets on how deeply the Fed will need to cut rates in coming months and a healthy retail sales print could further amplify that trend, offering evidence of strength in an important pocket of the world's largest economy.

Investors will also get a chance to hear from a handful of Fed officials in the coming days, including Governor Christopher Waller, Minneapolis Fed President Neel Kashkari and San Francisco Fed President Mary Daly.

3. ECB rate cut

The ECB is set to deliver another quarter-point rate cut on Thursday, a move policymakers and market watchers had all but ruled out after the bank’s last meeting in September.

Since then, indications that economic growth is slowing and price pressures are easing have increased the need for faster cuts to support the bloc’s economy.

Some analysts reckon Thursday's move could kick off back-to-back rate cuts.

Cutting again in October will be significant, analysts at Deutsche Bank said in a note on Friday. “As the first back-to-back cut of the cycle, it would signal a pivot into a faster easing cycle. Nevertheless, the high level of macro uncertainty means that despite the pivot, we are not expecting the ECB to move away from the 'data dependent, meeting by meeting' approach to policy.”

By David Lawder

WASHINGTON (Reuters) - The world's 26 poorest countries, home to 40% of the most poverty-stricken people, are more in debt than at any time since 2006 and increasingly vulnerable to natural disasters and other shocks, a new World Bank report showed on Sunday.

The report finds that these economies are poorer today on average than they were on the eve of the COVID-19 pandemic, even as the rest of the world has largely recovered from COVID and resumed its growth trajectory.

Released a week before World Bank and International Monetary Fund annual meetings get underway in Washington, the report confirms a major setback to efforts to eradicate extreme poverty and underscores the World Bank's efforts this year to raise $100 billion to replenish its financing fund for the world's poorest countries, the International Development Association (IDA).

The 26 poorest economies studied, which have annual per-capita incomes of less than $1,145, are increasingly reliant on IDA grants and near-zero interest rate loans as market financing has largely dried up, the World Bank said. Their average debt-to-GDP ratio of 72% is at an 18-year high and half of the group are either in debt distress or at high risk of it.

Two thirds of the 26 poorest countries are either in armed conflicts or have difficulty maintaining order because of institutional and social fragility, which inhibit foreign investment, and nearly all export commodities, exposing them to frequent boom-and-bust cycles, the report said.

"At a time when much of the world simply backed away from the poorest countries, IDA has been their lifeline," World Bank chief economist Indermit Gill said in a statement. "Over the past five years, it has poured most of its financial resources into the 26 low-income economies, keeping them afloat through the historic setbacks they suffered."

Investing.com -- The Federal Reserve's upcoming November 6-7 meeting is likely to see a stronger stance from monetary policy hawks, Yardeni Research strategists said in a note, as September’s inflation data came in hotter than anticipated.

This challenges the position of Fed Chair Jerome Powell and other dovish members of the Federal Open Market Committee (FOMC), who delivered a 50 basis point rate cut last month amid concerns about a slowing economy. Yardeni strategists note their credibility has been weakened, especially after the latest jobs report showed a further drop in the unemployment rate and record-high payrolls.

“Today’s CPI data support our story that the Fed shouldn't cut the federal funds rate (FFR) at its two remaining meetings this year,” strategists said in a Thursday note.

Bond market signals appear to align with this outlook. Since the Fed’s 50-basis-point rate cut on September 18, the 10-year Treasury yield has climbed from 3.63% to 4.11%, reflecting rising inflation expectations.

Stocks, meanwhile, have only slightly dipped from the new record highs reached yesterday. Yardeni believes that any further rate cuts “would increase the odds of a stock-market melt-up.”

The research firm highlighted several key data points from the latest CPI report, explaining why the Fed may need to halt its dovish shift.

In late 2022, Fed Chair Jerome Powell stressed the importance of supercore inflation (core services inflation excluding housing) in predicting future core inflation trends. Thursday’s CPI report showed that supercore CPI inflation has inched up from 4.3% to 4.4% year-over-year, a “far cry from 'mission accomplished’,” Yardeni says.

By Stella Qiu

SYDNEY (Reuters) -Asian shares were headed for their first weekly loss in five on Friday as a stunning rally in Chinese shares took a breather, although all eyes are on the details of much-anticipated fiscal stimulus from Beijing this weekend.

European stock markets are set to open slightly higher, with EUROSTOXX 50 futures and FTSE futures both up 0.2%. French bond futures rallied 33 ticks, slightly ahead of a small bounce in U.S. bonds, as France planned tax hikes and spending cuts to rein in its deficit.

Wall Street futures were flat. Tesla (NASDAQ:TSLA) unveiled the long-awaited showcase of an autonomous taxi in Los Angeles, which came with fanfare but few details on timing. Production is not set to begin until 2026.

MSCI's broadest index of Asia-Pacific shares outside Japan rose a subdued 0.3% on Friday but was still set for a weekly loss of 1.7% after four straight weeks of gains. The Nikkei, however, gained 0.5%, bringing its weekly rise to 2.5%.

South Korean shares erased earlier gains and were last flat as the Bank of Korea's decision to start its easing cycle with a quarter-point move was widely expected.

China's blue chips fell 1.8% on Friday and were down 2.3% for the week. Hong Kong's Hang Seng, which was closed for a public holiday on Friday, fell 6.5% for the week, the biggest weekly drop in two years.

Investors' enthusiasm about China's economic stimulus announced last month has given way to concerns about whether the policy support would be big enough to revive growth, putting the spotlight on whether the finance ministry will announce significant fiscal stimulus at a press conference on Saturday.

(This Oct. 9 story has been corrected to fix the analyst's estimate of the size of the China market to 25%, not 35%, of the global total, in paragraph 9)

By Casey Hall

SHANGHAI (Reuters) - European luxury shares have slid on investor concerns that Hermes handbags and Dior slingbacks may be Beijing's next targets for retaliation, following the EU's decision to slap tariffs on China EVs, but analysts say such a move is unlikely.

"It’s a question of how Beijing will respond to the EV tariffs. Is there going to be an escalation? I think yes. Is it going to go after luxury goods? I don’t think so," said Patrice Nordey, CEO of Shanghai-based innovation consultancy Trajectry.

So far, moves by China in the ongoing tit-for-tat trade spat with the EU have targeted brandy, pork and dairy, all of which are major industries for France, which lobbied for tariffs on Chinese-made EVs imported into the EU.

Shares of LVMH, which also markets high-end Hennessy cognac, Hermes, Kering (EPA:PRTP), Ferragamo, and Burberry dropped 2%-6% on Tuesday after Beijing said it would impose temporary anti-dumping measures on imports of brandy.

Jacques Roizen, managing director of China consulting at Digital Luxury Group, said targeting luxury goods in China would run counter to what has been consistently favourable policies for luxury firms in the world's second-largest economy, where Beijing is eager to keep more luxury spending, rather than see its consumers splurge in overseas markets.

He points to the example of Hainan, which has been built into a major duty-free hub largely due to the acknowledgement from policymakers that luxury spending in China is good for the country.

"When luxury goods sales are taking place in China, that means more tax revenue, and it's significant," he said.

"If there were a new fiscal environment that forced luxury brands to increase their price in China, it would create further incentive for Chinese consumers to make their luxury expenditures outside China, which is the opposite of what the government wants."

The size of the Chinese luxury market, even considering its recent slowdown, is expected to account for 25% of the global total this year, according to Jelena Sokolova, senior equity analyst at Morningstar.

This helps to explain the reaction of European luxury shares to every announcement that comes from China, she said, but also means that even the threat of introducing tariffs or raising domestic consumption taxes on imported luxury goods would hit French luxury conglomerates where it hurts.

French brandy shipments to China reached $1.7 billion last year and accounted for 99% of the country's imports of the spirit, while 11 billion euros ($12 billion) in European luxury goods were imported into China last year.

But the very size of the luxury goods industry might make it a less likely target for Beijing, according to Albert Hu, professor of economics at the China Europe International Business School in Shanghai.

"I think at this point, neither EU nor China wants a full- scale trade war that would hurt both economies," he said, adding that China's relatively careful orchestration of retaliatory targets thus far indicates Beijing is eager to continue negotiating and working towards a compromise with Brussels.

SEOUL (Reuters) - South Korea's central bank cut interest rates on Friday as widely expected, embarking on an easing cycle to join global peers, as headline inflation slowed and the economy shrank in the second quarter.

The Bank of Korea (BOK) lowered its benchmark interest rate by a quarter percentage point to 3.25% at its monetary policy review, an outcome expected by 34 of 37 economists polled by Reuters.

Governor Rhee Chang-yong holds a news conference at around 0210 GMT, which will be livestreamed via YouTube.

By Caroline Valetkevitch

NEW YORK (Reuters) -Investors will be looking for evidence that investment in artificial intelligence among S&P 500 companies is beginning to pay off as the reporting season progresses, despite the fact that analysts expect profit growth to decelerate from the previous quarter.

S&P 500 earnings are estimated to have increased 5.3% over the year-ago quarter, down from a second-quarter gain of 13.2%, but technology and communication services sectors are forecast to have the strongest year-over-year growth, according to LSEG data as of Friday.

The earnings period unofficially kicks off this week, with reports from major financial firms including JPMorgan Chase (NYSE:JPM) and Wells Fargo due Friday.

AI-related companies have dominated earnings since last year, and optimism over AI plans have helped to drive strong gains in the market. The S&P 500 is at record high levels and up roughly 21% for the year so far, with tech and communication services leading sector gains since Dec. 31.

"Many analysts will start looking at how and if a lot of these larger companies can monetize the model that they're training, and we've seen the ones that have been able to do so have been rewarded quite well," said Howard Chan, chief executive officer of Kurv Investment Management in San Francisco.

Technology sector earnings in aggregate are expected to have gained 15.4% from the year-ago quarter, while communication services earnings are seen up 12.3%, based on LSEG data.

Shares of Meta Platforms (NASDAQ:META) jumped on Aug. 1, a day after it issued an upbeat sales forecast for the third quarter, signaling that digital-ad spending on its social media platforms can cover the cost of its AI investments.

"Companies like Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL), they're spending quite a bit, but it's a little bit less understood... how that will interplay with their existing businesses," Chan said.

Investors may also be hoping earnings can justify higher stock prices. With the S&P 500 at record high levels, the index is now trading at 22.3 times future 12-month earnings estimates, well above its long-term average of 15.7, according to LSEG Datastream.

Solita Marcelli, chief investment officer for Americas at UBS Global Wealth Management, wrote in a note Wednesday that third-quarter results could provide a catalyst for gains as investors focus on tech fundamentals and AI.

"We continue to favor the semiconductor space and megacaps for AI exposure," she wrote, noting that she expects tech and AI companies to beat results for the quarter ended in September and also raise their outlooks.  

UBS expects overall AI semiconductor industry revenues to grow sharply, and reach $168 billion by the end of this year, according to the note.

Earnings growth in most S&P 500 sectors is seen lower than the previous quarter.

Investors had been worried the economy may have been getting too weak. The Federal Reserve last month kicked off a monetary easing cycle by cutting its benchmark interest rate by an unusually large 50 basis points, the first reduction in borrowing costs since 2020, amid signs the labor market was weakening.

Those concerns eased a bit with last week's monthly U.S. jobs data, which showed that U.S. job gains increased in September by the most in six months, and that unemployment rate fell to 4.1%.    

Still, company comments about consumer health will be scrutinized. "Lower front-end rates are more helpful to consumers than companies ... So the Fed policy is more something that consumer-driven companies could benefit from," said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

At the same time, some strategists said, investors may be eager to hear from companies about what the recent surge in oil prices might mean for businesses. Oil prices have gained as Middle East tensions have escalated.

Earnings for the energy sector are expected to have fallen 19.7% in the third quarter from a year ago, LSEG data shows.

By Manoj Kumar and Karin Strohecker

NEW DELHI/LONDON (Reuters) - The World Bank raised its growth forecast for South Asia to 6.4% in 2024 from an earlier estimate of 6.0%, citing the strength of domestic demand in India and quicker recoveries in crisis-hit countries such as Sri Lanka and Pakistan.

India's economic growth forecast for the current fiscal year, ending in March 2025, was revised to 7% year-on-year, up from April's estimate of 6.6%, helped by a rebound in agricultural output and increased private consumption.

"You have an emerging class of consumers in India that's driving the economy forward, you have recoveries from crises in Sri Lanka and in Pakistan, you also have a tourism-led recovery in Nepal and Bhutan," Martin Raiser, World Bank Vice President for South Asia, told Reuters.

The upward revision confirms South Asia as the fastest growing emerging economy region monitored by the World Bank. The Washington-based lender projects South Asia will see robust 6.2% growth annually for the following two years.

Raiser said there was "significant upside potential" to growth with greater integration of South Asian countries into the global economy, but countries needed to stick with economic reform programmes to sustain momentum.

On Wednesday, India's central bank maintained its GDP growth forecast at 7.2% for the current fiscal year and shifted its policy stance to neutral.

The World Bank projected Pakistan's economy would grow by 2.8% in the current fiscal year, which started in July, an increase from the previous estimate of 2.3%, aided by a recovery in manufacturing and easing monetary policy.

Sri Lanka, which is clawing its way out of a sovereign debt default and its worst economic crisis in decades, saw the biggest upward revision, with growth expected to come in at 4.4% this year and 3.5% in 2025.

Nepal's growth forecast was raised to 5.1% from 4.6% for the 2024/25 fiscal year beginning mid-July, and Bhutan's to 7.2% from 5.7%.

But Bangladesh's growth forecast was downgraded to 4.0% from 5.7% for the fiscal year 2024/25, spanning from July to June, reflecting a slowdown in garment exports amid recent social unrest.

The World Bank recommended the region should boost women’s labour force participation - currently the lowest globally at 32%. Raising employment among women to levels comparable to those among men could raise output by as much as one-half in the long term, the report said.

"Bringing more women into the labour force could add significantly to the production potential," said Raiser.