European stocks could struggle to push to new multi-year highs next week as investors fret about US growth and a Chinese equity bubble, amid a hefty stream of economic data, merger developments and a handful of earnings.
Fund managers and strategists caution the European market could be due for a near-term correction, particularly if investors revert to the traditional "sell in May and go away" summer trading strategy before the end of the month.
"A lot of people including ourselves have been saying we remain bullish for the long term but we're probably overbought in the short run," said Philippe Gijsels, senior equity strategist at Fortis Bank in Brussels.
"People typically say sell in May and go away. I'm not a big believer in that, but we're in a difficult part of the year so it's not inconceivable that we'll correct or consolidate." The FTSEurofirst 300 index of leading European shares was marginally down towards the close on Friday. The index reached its highest level since late 2000 on Thursday, but was on track to close the week down around 0.3 percent.
Concerns that the US Federal Reserve may not cut interest rates this year weighed on global equities, alongside concern over US economic growth and worries the overheated Chinese stockmarket could take a tumble, with widespread implications.
"The equity market outlook is good for an investment horizon longer than 12 months," said Morgan Stanley strategist Teun Draaisma in a report.
"But bad for a more tactical horizon of three to six months. We think the risk-reward of buying equities on a three to six month view is bad, and we'd still rather be in cash." The weekahead will start on a subdued note, with markets in Britain, Germany, Switzerland, Greece, Austria, Denmark and the United States among those closed for holidays on Monday.
Mergers and acquisitions, which have helped drive European stocks up 8 percent this year, will be in focus on Tuesday when the Royal Bank of Scotland-led consortium releases a statement on a possible offer for ABN Amro.
RBS, which has linked up with Santander and Fortis, is looking to trounce Barclays' agreed all-share take-over for ABN Amro. "It's still fair to say that the market is working on the basis that the Royal Bank-Santander-Fortis could pay a higher price than Barclays," said Neil Dwane, chief investment officer for equities for Europe at fund firm RCM.
"The issue for the market is really just one of, can the stars align to allow that 39 euro offer to be made." The stream of European earnings dwindles in the week, with Vodafone reporting on Tuesday, followed by National Bank of Greece, Statoil, Antofagasta and British Energy Group on Wednesday.
Bank of Ireland, Kingfisher, Man Group Scottish & Southern Energy and Sportingbet are among companies reporting on Thursday. OMX, which agreed to be bought by Nasdaq for $3.7 billion, reports its May trade data on Friday. A heavy schedule of economic data is on the calendar, starting with Eurozone current account and US consumer confidence data on Tuesday.
German unemployment, Eurozone inflation figures, consumer, economic and industrial sentiment data feature on Thursday, alongside US preliminary GDP and PCE data. Friday sees Eurozone quarterly GDP and unemployment data, along with US consumption, US core PCE, non-farm payrolls, manufacturing ISM and pending homes data, and the University of Michigan survey. The US reporting season also continues next week, with S&P 500 companies including Polo Ralph Lauren, Costco, Dell, HJ Heinz, Sears and Tiffany posting corporate earnings.