World Week Ahead: European debt, American profits

World Week Ahead: European debt, American profits

By Margreet Dietz

Jan. 9 (BusinessDesk) - The second week of the New Year may prove more telling for investors than the first with a slew of European nations set to tap debt markets and corporate America set to report quarterly results.

Last week came with fresh signs of strength in the world's largest economy, helping lift equities on Wall Street and Europe, though continued concern about Europe's fiscal problems kept a lid on gains.

In addition, tensions between the West and Iran have revived concerns about global oil supply and refocused attention on the Middle East where there are increasing signs that the hopes that emerged during the bullish days of the Arab Spring may yet prove false. Iraq, as one example, appears to be edging closer to sectarian disarray in the wake of the withdrawal of US troops.

"It feels like a tired market," Jim Russell, regional investment manager for US Bank Wealth Management in Cincinnati, told Reuters ahead of the weekend. There's also "nervousness" about what lies ahead, he added.

At the start of this week is a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel on Monday, seeking to put into words a new system of fiscal rules. Sarkozy met with Italy's Prime Minister Mario Monti on Sunday, and he has invited both his French and German counterparts to Rome later in the month.

While Greece put the Eurozone debt crisis on the map, Italy sits closer to the abyss with a much larger amount of debt and tens of billions of debt needing to be refinanced in the first four months of 2012.

France, Greece, Germany, Italy and Spain are scheduled to sell debt this week in an environment of rising bond yields and wary investors.

Spain last week saw its 10-year yields post the biggest weekly jump in almost 17 years, according to Bloomberg News, even though Spanish voters recently elected a new financial-focused government. One reason for the yield jump is comments from the government's new ministers that Spain's debt crisis is far worse than the previous cabinet acknowledged.

Key this week is the start of earnings season in the US, with a particular concern for multinational companies exposed to Europe. Alcoa is expected to report Monday after the close of the market, and it already flagged last week that trouble is fast approaching.

JPMorgan Chase is due to report on Friday. S&P 500 fourth-quarter earnings are expected to have risen 7.8 percent from a year ago, according to Thomson Reuters data.

"I think this month we're probably going to break away and see the pattern of US market trade on US fundamentals rather than in reaction to the euro movement," Fred Dickson, chief market strategist, DA Davidson & Co in Lake Oswego, Oregon told Reuters.

"We're going to need good, strong positive news on earnings to lift all three of the market averages out of their trading ranges," Dickson said. "They're bumping into some overhead resistance, and it's going to take fundamental news to do it."

In the first four trading days of the year, the Standard & Poor's 500 Index rose 1.6 percent, the Dow Jones Industrial Average gained 1.2 percent, while the Nasdaq Composite Index climbed 2.7 percent.

This week also investors will watch for reports on American retail sales and consumer sentiment. And perhaps more banter from US Federal Reserve officials, as the doves and the hawks jockey for position.

The recent indications that the US recovery is gathering speed suggest the Federal Reserve might be able to refrain from buying more bonds to help boost growth, St Louis Fed President James Bullard said on Saturday. The US government on Friday reported better than expected jobs data, including a drop in the unemployment rate to near a three-year low.

"I don't think it's very likely right now (the Fed will buy more bonds) because the tone of the data has been pretty strong" through the end of 2011 and up to now, Bullard told reporters after a speech at an economics conference. "We can probably wait and see for now."

(BusinessDesk)

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