November traffic figures from the continent's leading airlines, the European Central Bank's monetary policy meeting and the euro-dollar exchange rate look set to grab the spotlight next week, equity strategists say.
Another downward correction after this week's roller-coaster ride cannot be ruled out in the short term but some analysts voiced confidence in medium-term European corporate earnings prospects, even though profit growth looks bound to slow.
Also in focus will be US November payrolls data on Friday - the last key indicator before the Federal Reserve's next interest rate meeting on December 12.
Volumes are expected to become thinner as some investors are likely to start closing their books for the year. "It will all be quite erratic as books will be closed soon," said Ralf Groenemeyer, equities strategist at Commerzbank. The FTSEurofirst 300 index of top European shares was up 0.3 percent at 1,436.12 points by 1420 GMT on Friday but looked set to end the week 1.0 percent lower with the euro hitting a 20-month high against the dollar, hurting exporters such as car makers.
Europe's top-300 index remains up 12.5 percent for the year. Some analysts saw scope for declines towards the end of the year as earnings growth slows, but others were more optimistic. "In the next couple of months we expect a broad consolidation," Germany's Postbank said, adding that worries about economic development in the United States and therefore world-wide would be a dominant theme in the near term.
SLOWER PROFIT GROWTH "Earnings are probably going to slow materially in 2007," said HSBC, which is overweight technology and pharmaceuticals, and underweight media, utilities and paper.
But Frank Schallenberger, equity strategist at German regional bank LBBW, saw reason for optimism. "Apart from a positive macro economic environment - the German economy is booming like it hasn't in a long time - and upbeat corporate news, institutional investors' appetite for equities point to a friendly year end," Schallenberger said.
With the third-quarter earnings season all but over, traffic numbers from European airlines - some of which are engaged in sector consolidation talks - top the week's corporate agenda. British Airways and Norwegian Air Shuttle report November traffic data on Tuesday followed by Air France KLM, SAS and EasyJet on Thursday.
Retailer Tesco is due to release its third-quarter trading statement on Tuesday. Investors are likely to scrutinise the numbers to see whether the stock's premium over rivals such as Carrefour and Ahold is warranted.
Eyes will also be on Deutsche Telekom, whose new Chief Executive Rene Obermann is scheduled to unveil his strategy plan at a supervisory board meeting on Tuesday.
Sports car maker Porsche's full-year results are due on Wednesday. Key earnings are already out and eyes will be on the outlook and plans for its Volkswagen stake. Postbank sees global M&A activity in 2006 rising 30 percent from 2005 and possibly beating the 2000 record of $3.2 trillion.
M&A "should continue to spice things up and boost share prices next year as well," it said. In the financial sector, HSBC and Royal Bank of Scotland are due to release trading statements on Tuesday and Wednesday, respectively. The dollar's recent slide means investors are likely to pay particular attention to comments on US operations.
"Dollar weakness has become a key concern for many market participants," Citigroup said. "Euro appreciation is likely to have mixed implications for the equity market and corporate profits. We estimate that approximately 17 percent of the DJ Stoxx revenues come from North America," it said.
ABN Amro said the dollar looked destined for a period of weakness that may extend well into next year and Pimco foresaw a renewed downward adjustment. The euro was still about 10 percent from its high of $1.36, and "may have some further room to appreciate," Pimco said.
Investors will be monitoring the ECB's rate decision on Thursday and the Bank of England's on the same day. Euro zone interest rates are widely expected to be pushed up by 25 basis points and another hike may follow early in 2007. All 71 economists in a Reuters poll forecast that the ECB will raise its key rate to 3.5 percent.
"It will be interesting to see what forward looking signals the ECB will send out," said Michael Koehler, equity strategist at German Landesbank Rheinland-Pfalz. "Nonetheless, US interest rates will remain in the spotlight, as rate cuts are more of an issue now after the weak Chicago PMI index," he said.
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