European stocks face a flood of earnings reports next week and focus will be on whether firms can sustain record profitability, while interest rate decisions are also due in the UK and from the European Central Bank.
GlaxoSmithkline and Roche, BHP Billiton, ABN Amro and Unilever head the line-up of companies issuing results. Also reporting are KPN, results of which will be closely watched as Deutsche Telekom issued a profit warning in January.
European stock markets have scaled six-year highs, boosted by mostly upbeat corporate earnings and M&A activity. The MSCI world index is also at a record high at 375.5 points. On Friday, the pan-European FTSEurofirst 300 index hit a six-year high at 1,537.6 and was set to end the week about 2 percent stronger, pushing gains in 2007 to nearly 4 percent. The index jumped 16 percent last year, driven by low borrowing costs for companies, a glut of M&A activity and robust earnings.
Strategists said recent results from companies showed that markets still had momentum to rise further. "In Europe, earnings should be quite pleasant and earnings suprises should be quite positive. That supports our story that volume growth is still good and besides margins are rock solid," said Franz Wenzel, senior strategist at AXA Investment Managers.
Markets will keep an eye on interest rate decisions form the European Central Bank and the Bank of England, due on Thursday. The ECB is forecast to leave rates unchanged at 3.5 percent at the bank's meeting after ECB president Jean Claude-Trichet last month appeared to rule out any increase in rates.
The ECB is however nearly certain to raise borrowing costs in March and with a fair chance of another increase by mid-year to tackle higher wage demands and inflation, economists said. In the UK, only 5 of 62 economists polled by Reuters said they expected UK rates to be hiked on Thursday from 5.25 percent after last month's surprise increase.
"The current environment of robust economic numbers and still moderate inflation fears is supporting the equity market," equity strategists at HVB said in a note. "So far, the equity markets have coped well with the weakness of the bond markets in the last two months. One key aspect here is that the large number of positive surprises in the economic data was flanked by signs that inflationary pressure remains limited."
"This 'Goldilocks' combination is historically the 'best of all worlds' for the equity market," HVB's strategists said. Market expectations that the Federal Reserve will cut interest rates this year increased late on Friday after the US economy added a weaker-than-expected 111,000 jobs, below the 149,000 non-farm payrolls number estimated by economists.
Strategists said relatively cheap borrowing costs were likely to underpin strength in global equity markets. "We think the ECB tightening which is forecast for March doesn't really pose a problem. The Fed policy has much more market impact and we think the Fed is going to ease by mid-year," said AXA Investment's Wenzel.
Next week starts off on a quiet note for equity markets, with French IT services group Atos Origin reporting sales and unveiling a strategy update on Monday.
The following day, truck maker MAN which agreed to drop its hostile bid for Scania reports earnings, while results are also due from BP, Business Objects and KPN. On Wednesday, numbers are due from Roche, BHP Billiton, Peugeot and a trading update from EasyJet. The week's earnings season peaks on Thursday, with reports from GlaxoSmithkline, ABN Amro, Unilever, BT, ICI and Renault.
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