European stocks are set to hover around six-year highs in the week ahead as investors digest a batch of corporate earnings, while worries about the outlook for US interest rates may limit upside gains. Results from L'Oreal, Roche, Rio Tinto, Tesco and Swatch dominate the week's European earnings releases.
As the US quarterly reporting season also picks up steam. "We have the first quarter results in Europe and America, the earnings surprises should increase, this will hike the market, along with the M&A story and liquidity," said Philipp Musil, fund manager at Constantia Privatbank in Vienna. "There are too many pessimists in the market. The first half of 2007 will be positive."
Germany's ZEW investor sentiment survey and Euro zone inflation data top the region's economic calendar, alongside US inflation, housing starts and retail sales figures. The FTSEurofirst 300 index of leading European shares looked set to end Friday's session up around 0.4 percent at 1,548.45, bringing its gains since April 5, the last session before the long Easter vacation, to 0.6 percent.
The index, which struck its highest intraday level in over six-years earlier in the week, has now recovered the ground lost during February's sharp global equity sell-off, triggered by a Chinese stocks slump and worries over US growth.
"European equities still offer an attractive valuation play," said ABN Amro analysts in a report. Ongoing merger battles are likely to feature strongly in the week ahead, with Barclays tipped to show its hand with a bid for ABN Amro after its period of exclusive negotiations ends on Wednesday. Counterbids may also emerge, with Royal Bank of Scotland, Banco Santander and BBVA among potential rivals.
Eiffage's annual meeting will also draw attention on Wednesday when the French firm's management tries to fend off Sacyr Vallehermoso's second attempt to obtain five board seats. The Spanish firm has raised its holding to just under the one-third trigger for take-over bids.
A steady stream of European results are due for release next week, with March sales figures from Hennes & Mauritz on Monday and traffic data from Fraport. Tuesday sees sales from L'Oreal, alongside earnings from Tesco, Experian, Burberry, and Remy Cointreau, while Roche and ASML dominate Wednesday's thin calendar. Quarterly figures from Rio Tinto, Vivendi, Clarins and Schneider Electric feature on Thursday, along with annual results from Swatch and new business for Prudential. Results on Friday slow to a trickle with results due from SAP, Bankinter, Banco Popular, and WPP Group.
"We retain our long-held bullish stance on European equities," said Citigroup in a report. "Our start-year market target suggests 15 percent gains from European equities in 2007. This implies a small re-rating."
US firms reporting quarterly earnings include Citigroup, Coca-Cola, Intel and Yahoo!. In economic news, Euro zone and UK inflation data feature on Monday and the ZEW investor sentiment survey on Tuesday. In the US, retail sales and business inventories data are due for release on Monday, ahead of closely watched inflation, housing starts and industrial production on Tuesday.
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