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World Week Ahead: Earnings expectations high

Monday 12th April 2010

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The global economic outlook continues to brighten and now investors will get a chance to see whether the stock bets they’ve made in recent weeks are founded on real money or not. 

US earnings season - for the first quarter of 2010 - begin in earnest on Monday, led by Alcoa Inc after the markets closing bell. Intel Corp, JPMorgan Chase & Co, Bank of America Corp and General Electric Co will also post results this week. And expectations among investors are high. According to a Bloomberg survey, combined profit for Standard & Poor’s 500 companies will rise 30% from a year ago.

Thomson Reuters data puts the year-over-year growth up 36.8%. 

“We’re going to see a healthy number of positive earnings surprises,” Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, told Reuters. “We’re seeing stronger economic data than what we expected, and that should translate into a little bit better revenue growth.” 

Pre-announcements heading into the reporting period show more positive outlooks than average and fewer negative ones, indicating company executives feel confident about results and analysts' estimates, Reuters reported. The negative-to-positive pre-announcement ratio is at 1.3, well below the long-term average of 2.1, according to John Butters, director of US earnings for Thomson Reuters. 

The S&P 500 advanced 1.4% to 1,194.37 last week, The Dow Jones Industrial Average rose 0.6% to 10,997.35. On Friday, the Dow broke through the 11,000-mark for the first time since September 2008. European stocks, notwithstanding lingering concerns about Greece’s fiscal outlook, rose for a sixth week in a row last week. The Stoxx Europe 600 Index has risen 6.2% this year. 

“There's not been a lot of profit warnings. I think the markets are expecting good things,” said Nick Kalivas, vice president of financial research and senior equity index analyst at MF Global, in Chicago. 

While US earnings are expected to be the focus, next week also brings the US consumer price, retail sales, industrial output and housing starts reports.  

“What we’ve seen in recent months is a broadening of the recovery that, in our view, already makes it self-sustaining,” Dean Makisaid, chief US economist at Barclays Capital Inc in New York, told Bloomberg. “One of the main reasons consumer spending improved pretty dramatically in the first quarter is simply that income growth is improving. 

Another event to keep on your radar: Federal Reserve Chairman Ben Bernanke testifies on the economic outlook before the Joint Economic Committee.  Of course, not everyone is betting on stocks. 

Continued dithering in Europe on when, how and even whether to help Greece pull back from the brink is bolstering the US dollar at the expense of the euro - and don’t expect that to be any different this week. The euro had dropped 5.9% against the greenback so far this year. 

After The New York Times last week reported China was preparing a shift in its yuan policy, China this weekend reported its first trade deficit in six years. China's US$7.24 billion deficit in March, reflected strong imports of oil, raw materials and cars, the General Administration of Customs said on Saturday.

Zheng Yuesheng, the customs agency's statistics chief, said China was likely to remain a surplus country over the long run. March's deficit was a blip, he told state television.  

The value of the yuan will be on the agenda when President Hu Jintao meets President Barack Obama in Washington this week.





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