European stock markets are likely to hold at 40-month highs next week ahead of US economic data and interest rate decisions in Europe and the UK, and with scant scheduled corporate news to spur activity.
With two weeks still to go before companies kick off third-quarter earnings in earnest, a trading update from BP will be eyed as oil prices hold firm at $67 a barrel, just shy of a record high of nearly $71 a barrel.
Airlines are a focus as British Airways issues passenger traffic data for September on Wednesday followed by rival Air France-KLM on Friday and low-cost airline Easyjet and Scandinavia's SAS on the same day.
European shares have rallied nearly 18 percent this year, pushing the pan-European FTSEurofirst 300 index to 1,231.15 this week. By 1230 GMT, the index was up 0.3 percent at 1,228.1 points and set to end with a weekly gain of 1.7 percent. The Dow Jones industrial average is flat this year while the MSCI index of non-Japanese Asian shares is up 12 percent and Japan's Nikkei has jumped 18 percent. Fund managers said strong-than-expected corporate earnings supported equities, but high oil prices remained a concern.
"At some time it must have an effect on some of the industrial companies and some of the consumer companies are struggling with pricing anyway," said Andrea Williams, head of European equities at Royal London Asset Management.
She expected markets to put on further gains next year but added that the near-term upside was limited.
"The concern is that there are a lot of IPOs coming into the market. There is an awful lot of issuance going on," she said.
The number of companies raising money through IPOs on the London Stock Exchange so far this year has already beaten last year's figures along with a big increase in the amount raised. Germany and Switzerland have also seen a boom in IPOs.
Forecasts for 2005 earnings show that oil and gas firms and basic resources sectors are leading the pack with gains fuelled by strong commodity prices.
Analysts expect European firms to grow earnings by around 19 percent in 2005, nearly double the growth forecast at the start of the year, according to data from research firm FactSet.
"Equity market valuations, underpinned by a backdrop of low interest rates, continue to suggest further upside potential from current levels," European strategists at ABN Amro said.
"And forecast earnings growth for 2005 continues to be revised upward as the global economy remains robust." The week starts off with trading statements from British mortgage bank Northern Rock and water firm Severn Trent on Monday. Other companies due to produce figures include French contract catering firm Sodexho, which issues full year sales on Wednesday. Supermarket group Sainsburys gives a trading update on Friday and Dutch copier and printer maker Oce reports third quarter results on the same day.
The US non-farm payrolls data for September, due out on Friday, will shed light on how the world's largest economy is faring and give an indication of the likely path of interest rates.
Economists surveyed by Reuters expect non-farm payrolls data will show a 125,000 drop, hit by the effect of recent hurricanes.
"Fed speakers have confirmed that they remain in tightening mode," said Kevin Grice, senior economist at American Express Bank, adding that underlying US labour growth remained growth leaving aside the distortions caused by recent hurricanes.Back in Europe, both the European Central Bank and the Bank of England hold interest-rate setting meetings on Thursday and are expected to keep rates on hold.
"In terms of Europe, the ECB is seen on hold next week, but they are itching to pull the trigger and rates will rise in 2006 and that will be a headwind for eurozone equities," said Grice.
"We think the cost of capital is going to get cheap in UK and overall it is not a bad environment for UK stocks.
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