Investors will sink their teeth into a mass of European company updates next week as they seek to determine whether robust earnings will neutralise risks emerging in recent months to the four-year bull run in stocks.
The deluge of earnings includes index heavyweight oil producers BP and Shell, pharma groups GlaxoSmithKline and AstraZeneca and auto groups Volkswagen and DaimlerChrysler.
European shares have risen 9.3 percent this year, driven by a mix of merger and acquisition deals, economic growth and broadly strong earnings. But there have been hiccups along the way such as a slide in Chinese stocks that sparked a global equities slump in late February, a sharp rise in bond yields, worries about US subprime mortgages, wider spreads on credit and higher interest rates.
Against this background, fresh proof that earnings are still strong would soothe frayed investor sentiment. Analysts said they expected the current earnings season to provide this evidence, though it would take massive positive surprises to move shares substantially during the summer months.
Philippe Gijsels, a strategist at Fortis Bank in Brussels, said he expected earnings growth to be slightly better than 7 to 8 percent for the reporting quarter versus a year earlier.
"I'd expect industrials, techs and health care shares to grow the most in absolute terms, and techs to outperform expectations," he said. "In the banking sector, the focus will be on how much companies say about the subprime problem."
Among the major tech companies to report so far, German business software maker SAP posted strong results, sending its stock soaring. But handset maker Ericsson disappointed.
Goldman Sachs said in a note that there were as many powerful supports for equities and "risks to the upside" as there were risks to the downside. Its list of supports included continued strong global demand, ongoing profit growth with stable or rising return on equity, attractive valuations and robust liquidity.
Other major companies due to report results include German engineering group Siemens, Swiss rival ABB, chipmaker Infineon, airline Lufthansa, aerospace and defence group EADS, utility Gas Natural, bank Santander, telecoms group and chemical makers Akzo Nobel and DSM. Gijsels said that good results were largely priced in and that guidance for the rest of the year looked good so far.
"In the United States, the big industrials like GE and IBM are all guiding fairly well," he said. "It will be a huge disappointment if growth does not materialise."
On the economic data front, investors will look at German inflation figures, the Ifo index and a clutch of data from the United States including home and mortgage data, durable goods and an advance estimate of US Gross Domestic Product.