European equity investors will continue to focus on the weakening euro next week after the single currency's decline propped up exporters and helped boost shares to 3-year highs. The euro fell to eight-month lows against the dollar after the rejection of the EU constitution in referendums in France and the Netherlands and more political uncertainty next week could further weigh on the currency.
Luxembourg hosts a gathering of European finance ministers on Monday and Tuesday as the wrangling continues and G8 finance chiefs meet in London at the end of the week as they prepare for the full summit in Gleneagles, Scotland in July.
"The currency market is now at a critical juncture with participants pondering whether a new era of Euro weakness is poised to take over after 3 years of dollar depreciation," a UBS note said.
"The market also remains acutely sensitive to negative Eurozone news at this point, and upcoming EU finance ministers meetings and leadership summits carry a degree of event risk."
European leaders have sought to limit the fallout from the no votes but a euro-sceptic Italian minister saying the country should quit the euro and readopt the lira hit the currency again briefly on Friday.
Long term worries about political instability rather than the immediate fillip for exporters could now begin to creep into equity investors' thinking.
Goldman Sachs is raising its estimates for European company earnings this year based on a lower expectation for the euro but has warned of the effect on sectors lacking exporters.
"Sectors that are much less impacted and could underperform in an environment where the euro is very weak would be more domestic orientated sectors like utilities, telecoms, retail and banks," strategist Sharon Bell said.
BOE RATE DECISION: Little corporate news is expected in Europe although a Bank of England interest rate decision along with news from the retail and banking sectors could influence UK shares.
Royal Bank of Scotland's trading statement on Wednesday will be especially eyed after banking shares were hit after Barclays warned of rising bad debts last week and then recovered as HBOS reassured the market on its state of health this week.
British retailer Woolworths also gives an update with investors fearing further signs of a British consumer slowdown after several stores talked of tough conditions in recent weeks.
However, economists doubt the gloomy outlook will force the Bank of England's Monetary Policy Committee to cut rates on Thursday after sticking to 4.75 percent for nine months straight although many predict a decrease by the year-end.
Utility Severn Trent reports annual numbers next week with pretax profit seen around 256 million pounds against 273 million last time while Carphone Warehouse also has full-year figures. London index compiler FTSE announces the results of its rejig review on Wednesday with packaging firm Bunzl set to leave the FTSE 100 and plasterboard maker BPB poised to rejoin the flagship index.
In Europe headline figures on Thursday come from Swiss luxury goods group Richemont, a beneficiary of the weakening euro, with the market expecting year earnings before interest and tax of 502 million euros against 296 million last year.
French advertising group Havas holds its AGM on Thursday with a showdown expected between Havas management and top shareholder Vincent Bollore, who is asking for four seats on the board, although he has said he will not launch a bid for the firm.
Carrefour and Air Liquide also host AGMs while Neopost posts first-quarter numbers on Tuesday and Remy Cointreau full-year figures on Wednesday.
The week is also peppered with May traffic figures from carriers like Lufthansa and AirFrance KLM.
Comments
Comments are closed.