US data and monetary policy will drive the market next week, with trading updates from oil major BP, Anglo-Swedish drugmaker AstraZeneca and UK mobile phone retailer Carphone Warehouse also in focus.
Investors will look to America for clues on whether economic growth remains strong enough to drive European corporate profits higher and as blue chips Alcoa on Thursday and General Electric on Friday kick off a new earnings season.
Equities are underpinned by sustained economic growth, rising earnings and healthier balance sheets but capped by concern that higher oil prices and interest rate hikes.
By 1141 GMT the FTSEurofirst 300 index of pan European blue chips was at 995 points, having rebounded 6 percent since a 2004 low set at mid-August but still standing 3.6 percent below a 21-month peak hit at the end of April. European indexes have gone virtually nowhere this year, trading in a range of barely 9 percent from peak to trough.
Solid US payrolls data next Friday may provide crucial balm for consumers, whose spending fuels two-thirds of activity in the world's largest economy, and who are currently sitting tight due to uncertainty about job prospects.
Opinions diverge as to whether mixed US economic data signal a short-term lull or indicate that growth has now peaked but market watchers agree that the direction of volatile oil prices, along with US payrolls, will be key to gauge economic prospects and determine whether equities can make headway.
"The market has not reacted to strong positive earnings surprises due to concerns that the global economic recovery may be short-lived," said Rahul Shah, European equity strategist at JP Morgan. "We view these concerns as misplaced."
"Strong profit growth, high levels of capacity utilisation, lagging labour productivity growth, and low policy interest rates lead us to believe business spending will rise in Europe and elsewhere," he added. Soaring energy prices will likely make BP bullish about earnings prospects when the oil giant updates the market on third-quarter trading on Monday. AstraZeneca and Carphone Warehouse will also issue trading statements on Wednesday.
On the flip side, British Airways and Easyjet, all sharply affected by higher fuel costs, will issue their latest passengers traffic numbers.
French caterer Sodexho will report annual sales on Wednesday, the same day as troubled Italian aircarrier Alitalia and Spanish retail bank Banesto reports quarterly earnings at the tailend of Europe's reporting season.
On Thursday, Givaudan, the Swiss tastes and smells maker will unveil its third quarter sales a fortnight after it defied a raft of profit warnings from key clients to say it was still confident it could substantially raise profits in 2004.
The latest US reports on factory orders on Monday, the services sector on Tuesday, consumer credit on Thursday and wholesale inventories on Friday will also help clarify an economic picture many market watchers still consider blurred.
"The problem is that all the economic data that will be published over the next few weeks are for the month of August and September and those will be stained by the rise in oil prices, which will reinforce market fears of a marked economic slowdown," said economist Chloe Magnier at CIC Securities.
Investors will listen to speeches from Federal Reserve Chairman Alan Greenspan and several other Fed officials throughout the week to see whether the central bankers hold onto their optimistic view of the economy, as the market scours for clues on the pace of US monetary tightening.
"A stabilisation in oil prices would make investors refocus on the fact that things are not as dramatic as they see them," CIC Magnier said, adding: "Growth remains solid, even if less robust than in the first quarter, and investors may eventually start to believe what central bankers tell them."
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