European Stocks: lacklustre performance seen ahead

European stocks could struggle to regain 6-1/2 year peaks in the week ahead as interest rates dominate investors' attention, with the US Federal Reserve expected to keep the cost of borrowing on hold.
With just a sprinkling of European corporate news scheduled, including earnings from Diageo and Remy Cointreau, a flurry of economic data including US inflation figures will be in focus.
"We've had a four-year bull market, people are quite positive, but the risks on the whole are to the downside," said Jeremy Le Sueur, a fund manager at Church House Investments. "A lot of fund managers are saying it's going to be difficult to make money this year, and I think they're right. It's going to be a long summer."
The FTSEurofirst 300 index of leading European shares looked set to end Friday's session down 0.2 percent at 1,600 points, languishing below the 1,630.7 point, 6-1/2 year high hit earlier this week, but still up 8 percent year-to-date.
The US Federal Reserve Open Markets Committee is scheduled to announce its decision on interest rates on Thursday after a two-day meeting, with economists overwhelmingly predicting the Fed will hold rates steady at 5.25 percent throughout 2007.
In a sharp turnaround from just over a month ago when economists were forecasting a cut, a handful of economists are now predicting the Fed could even raise the cost of borrowing, according to a recent Reuters poll. Benchmark 10-year US bond yields, which threatened to dent the appeal of equities as they hit a 5.33 percent five-year high on June 13, will be closely watched in the week ahead. They last yielded around 5.20 percent.
"Even after the recent bond sell-off, we expect bond yields to creep higher due to the US recovery and the unravelling of the bond yield conundrum later on," said Tuomas Komulainen, from the European Securities Network, in a report. "Consequently, we continue to favour European equities over cash, bonds and US equities."
On the European corporate calendar, Monday sees Remy Cointreau report earnings, while Persimmon and Centrica release trade data and Volvo provides traffic figures. Diageo, Rank and Trinity Mirror release trade figures on Thursday, while HMV posts its final results and Escada its half-year earnings.
On the European economic front, Germany's GfK consumer sentiment survey is due for release on Monday, followed by Euro zone current account data on Tuesday and money supply on Thursday. Friday sees Euro zone consumer, economic and industrial sentiment data for June, alongside flash HICP.
A flurry of US data is due for release, with May home sales on Monday, chain store sales and consumer confidence on Tuesday, and US durable goods figures for May on Wednesday.
Final GDP and weekly jobless claims feature on Thursday ahead of Friday's US May personal consumption and expenditure data and the University of Michigan survey. Nike, Oracle and Monsanto feature among US companies reporting earnings.