(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/ FRAGILE OPTIMISM

With potentially problematic euro zone debt auctions out of the way without mishap, albeit at a price, and little euro zone sovereign issuance due in the coming week, the ability of world stocks and higher-yielding currencies to extend gains will depend more on economic data than has been the case recently. As long as pre-G20 comments don’t rattle markets, flash PMIs, Germany’s IFO, a Fed policy meeting decision and the language the U.S. central bank uses to explain its decision will show whether it is the sharp fall in Germany’s ZEW index or the more upbeat U.S. industrial output data which better reflects the economic outlook. Such signals will be crucial given fiscal austerity measures across a growing number of developed countries pose risks to economic recovery that will affect all asset classes.

2/ TESTING STRESS

The correlation between European peripheral sovereign bond spreads and the European banking index has broken down in the past week and a half with the latter rebounding as much as 14.3 percent from June 8 lows even as some euro zone spreads have kept widening (notably the Spanish/German one). Problems facing some banks in accessing funds have not gone away. However, EU countries’ greater inclination to publish more detailed bank stress testing results will encourage investors to show ever greater discrimination between banking stocks rather than tarring the whole sector with the same brush – as long as the test assumptions stand up to close scrutiny.

3/ FINDING MOMENTUM IN UNCERTAIN TIMES

Stocks are clawing their way up from a six-week fall but the drop in trading volumes and the dearth of major U.S. or European corporate results have got some wondering how long the positive momentum can continue without more concrete signs of improving economic health and corporate profitability. This is the sort of evidence it will take to offset the market volatility and uncertainty which prompted investors to pull $7.3 billion out of U.S. equity mutual funds in May, according to Lipper analysis. All the more so given volatility in key market influences such as credit ratings: Evolution Securities cites research showing that on average it takes 6,693 days for a rated entity to fall from A2 to Ba1 – a ratings shift that took Greece just 55 days.

4/ CAUTION STILL THE WORD

With the European debt crisis being cited as far afield as Asia as a risk to the global economy, the post-FOMC statement next week will be perhaps most interesting for whether it will warrant a mention there. Whatever the U.S. central bank says, it is unlikely to change financial market expectations that it will be the first of the three major Western central banks to tighten monetary policy, not least as the European Central Bank has committed itself to offering unlimited funds at three-month lending operations until the end of the year. That might tilt the balance in favor of German notes and bonds outperforming U.S. paper, but it won’t guarantee it, especially if investors’ bigger focus is on holding liquid non-euro zone sovereign debt.

5/ SOVEREIGN FOCUS CROSSES THE CHANNEL

The emergency UK budget which will be unveiled next week, and its importance for credit rating firms, has the potential to distract investors’ attention from the concerns about euro zone sovereign credit problems and will determine whether euro/sterling extends its retreat. Further deep spending cuts might raise worries about a double-dip recession and pose a risk to the pound in the short term. However, a longer view might deem austerity measures less damaging to the currency and beneficial for gilts if they attack the structural deficit and reassure ratings firms.

(Compiled by Swaha Pattanaik; editing by John Stonestreet)