An expected quarter-point rise in US interest rates and updates from British retailers such as Sainsbury will drive sentiment on European equity markets next week, shortened by the Easter break. Investors will scour US economic reports on producer prices, on Tuesday, and consumer prices, on Wednesday, and listen intently to the Federal Open Market Committee on Tuesday for clues on the pace of monetary tightening going forward.
"Sentiment (is) more critically hinged on the Fed's semantic lean rather than the scale of next week's widely expected quarter point hike," said economist David Brown at Bear Stearns.
"(The market is worried about) whether the Fed toughens up its message on inflation risks and implications of future policy response, or whether the Fed sticks with the status quo and keeps to the script of 'measured' and 'accommodative' wording."
European investors also await the publication of the Ifo index of German business sentiment on Wednesday after Europe's biggest economy contracted in the last quarter of 2004. On the same day the Bank of England will publish minutes of its Monetary Policy Committee's March 9-10 meeting as many predict the cost of borrowing will rise in the next three months.
In Britain results from retailers will dominate with annual figures due from Kesa Electricals, fashion chain Next and midcap general retailer Woolworths, all on Wednesday.
Wm Morrison Supermarkets, which warned investors this week its annual profits would miss forecasts, reports year numbers on Wednesday, while rival Sainsbury issues a fourth-quarter trading statement on Thursday.
The Morrison warning has raised some nervousness about the finances of the UK consumer, especially after UK February retail figures came in at their weakest in two years, although a sound employment outlook could support markets.
Germany's Metro reports on Tuesday, while at the high-end of the sector, investors will eye earnings from Bulgari on Tuesday and Hermes on Thursday. The FTSEurofirst 300 index had added 0.2 percent by mid-day on Friday, showing gains of 4 percent for the year but standing 2.5 percent short of an early March's 33-month peak.
"Given how strong the start of the year has been we probably are due a period of consolidation and I wouldn't be surprised if we see zero to very slight negative returns for the next four months," said Adrian Darley, a senior investment manager at Gartmore in London.
"But the more important message is that valuations still look reasonable and earnings are going up; that means we should see further reasonable returns in the next 12 to 24 months."
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