Next week should see risk appetite stage a comeback among European investors as shares return to the peaks seen in late February and tensions between Britain and Iran now appear to have subsided.
With the oil price now trading about 6 percent below their peak at the height of the spat between London and Tehran over the release of 15 British military personnel, investors are getting more comfortable assuming more risk, analysts say.
The seemingly endless flow of talk of tie-ups and actual deals has helped the FTSEurofirst 300 index add about 1.5 percent this week and ongoing merger mania is likely to see the market extend these gains.
Stock markets around the world staged robust rebounds this week, aided in part by the peaceful resolution of the stand-off between Britain and Iran over the release of the captured sailors.
"What is likely to be a driver going forward is increasing risk appetite among investors as reflected by the drop back in the VIX and also looking at the yen as well as an indicator of the carry trade," said Clive O'Donnell, a European strategist for Standard & Poor's.
"The view our technical analysts is that ... European indexes will break through the late February highs primarily because the gains we've seen are on rising volumes, which they interpret as a bullish signal," he added.
With the resolution of the crisis over the captured sailors, investors have seemingly dumped bonds for stocks this week, putting Germany's DAX at six and a quarter year highs, while other European indexes such as Paris' CAC 40 and London's FTSE 100 have also posted good gains on the week.
Mirroring this growing fondness for risk, eurozone government bond yields have risen by about four basis points this week, while so-called fear gauges such as the Chicago Board Options Exchange Volatility Index (VIX) have given up all of this week's gains as risk aversion has faded. This week witnessed the end of the fight to obtain control of Endesa as Germany's E.ON and Italy's Enel reached an agreement to jointly buy the Spanish utility after an 18-month battle by E.ON for sole ownwership.
The next chapter in this most recent string of proposed mega-mergers comes next week with the deadline for the private equity consortium led by CVC Capital to buy UK supermarket chain J. Sainsbury to decide definitively to make a bid.
The latest twist in the race for Sainsbury came on Thursday, with news of the withdrawal from the CVC Capital-led bid by private equity firm Kohlberg Kravis Roberts & Co.
Sources familiar with the situation said KKR had dropped out of the possible 9.5 billion pound ($18.75 billion) bid. Sainsbury shares fell by nearly 2.0 percent after the sources told Reuters of the KKR pull-out, which still left the company's stock on course to gain 1.0 percent on the week.
Among the bigger companies reporting next week are Europe's second-largest insurer, Axa SA of France which reports final year earnings, while UK government internet portal YouGov releases first-half results.
French supermarket chain Carrefour SA releases first-quarter sales figures, while SABMiller, the world's second largest brewer releases final trade numbers. On the macroeconomic front, the European calendar is extremely light, barring an interest-rate meeting by the European Central Bank on Thursday at which the ECB is widely expected to raise rates by a quarter-percentage point to 4.00 percent.
Investors will get a few reads on domestic inflation in France and Italy as well as gauges of eurozone growth and British trade figures. US data include wholesale price inflation for March and this could well impact European stocks, given the focus on the health of the US economy. The most recent spate of data suggest that while the US economy continues to grow and the worst of the housing downturn could be over, other indicators such as inflation and employment signal the current level of growth might not be sustainable.
The key piece of data is of course the March US non-farm payrolls report, due on Friday when European markets are closed. The report is expected to show the economy created 120,000 jobs in March but other measures of employment this week suggest that the resilience of the labour market may be fading.
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