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Earnings, data to revive rally?
PARIS, France (Reuters) -- Investors will scour earnings from top banks, insurers, airlines and a batch of economic data next week for reasons to extend recent strong gains in European stocks into a year-end rally. Strategists say there has been a change in market psychology over the last four weeks after a raft of positive news on corporate earnings, but that the good news needs to keep flowing. And any hints of better-than-expected figures or improving outlooks for Societe Generale (PCGE), Air France (PAIR), KPN (KPN) or Bayer (FBAY) will give European indices a fresh boost. "We need signals that there will be less nasty surprises in 2003. We may have turned corner but the trend is still towards weak economic growth and lagging productivity in Europe," said JCF Group strategist Jean-Luc Buchalet. The rally from five-and-a-half year lows on October 10 has pushed the FTSE Eurotop 300 index of Europe's leading blue chips up by more than 12 percent but left it down by 30 percent for the year. "We need a continued flow of good news on corporate earnings to keep the rally going as investors have their eyes set on the outlook for 2003," said E.T.C strategist Jean-Francois Cauvet. The past month's gains were partly fuelled by hopes central banks on both sides of the Atlantic would slash interest rates to revive flagging economic growth. But while the Federal Reserve on Wednesday sprang a surprise cut of 50 basis points -- compared with forecasts of 25 basis points -- neither the Bank of England nor the European Central Bank (ECB) followed suit, depriving equity markets of further stimulus. Investors are unsure how much higher the market can go now as concerns linger over the corporate outlook, a reminder of which came this week from technology giant Cisco's (CSCO) weak sales forecast. Worries also linger over the pace of the economic recovery while war in Iraq is still a possibility. Mixed financialsTop European banks and insurers report this week as markets fret that the sector, already hit by weak equity prices, will see its efforts to improve results hampered by the ECB's decision to leave rates unchanged. The picture is however mixed across Europe. Thanks to their steady retail business and the relative strength of the French economy, French banks have coped better in the recent downturn than their European counterparts. BNP Paribas (PBNP) reassured investors this week that its quarterly accounts contained no nasty surprises and investors hope to hear similar reports from French peers Societe Generale and Credit Lyonnais (PCLE) on Thursday. Third quarter 2002 consensus forecasts compiled by Reuters put Societe Generale's net profit at 231 million euros, down from 294 million year on year. For Credit Lyonnais analysts bank on a net profit of 161 million euros versus 197 million. Commerzbank (FCBK), heavily exposed to the increasing number of corporate failures as Europe's largest economy slows to a crawl, reports on Tuesday. Investors will scour its results after its bigger rivals Deutsche (FDBK) and HVB (FHVM) posted quarterly losses and soaring bad debts, reinforcing a growing opinion that the state of German banking is going from bad to worse. Elsewhere Credit Suisse is expected to post a third quarter loss of more than one billion Swiss francs hurt by the global market rout and an ambitious expansion strategy. Investors worried after Dutch peer Aegon delivered a pessimistic outlook will also scour quarterly figures from French insurer Axa (PCS) on Tuesday and Germany's Allianz (FALV) on Thursday. PLANES, UTILITIES, CHEMICALS, TELECOMSInvestors are also bracing for reports from national flag carriers Air France, Alitalia and Scandinavian Airlines as the travel market is still subject to global economic and political uncertainty. Reassuring news however came this week after British Airways (BAY) and Deutsche Lufthansa (FLHA) beat market expectations with robust profits. Air France, which has weathered an industry downturn better than many of its competitors by shifting emphasis to routes less hard hit by the Sept 11 attacks on the United States, reports half-year turnover on Tuesday. Alitalia posts its third quarter numbers on Wednesday, having already shaved its net loss by 80 percent in first half 2002 after a two-year crisis busting plan. German utility giants RWE (FRWE) and E.ON (AEON) report nine month results on Wednesday and Thursday and the focus willl be on potential write-downs on their UK investments after the collapse of UK wholesale power prices. But a continued rebound in core German power profits and first-time consolidations of newly acquired businesses should drive strong operating profit growth from both groups. Analysts also expect German drugs and chemicals conglomerate Bayer (FBAY) to post poor third quarter numbers though it made significant progress in restoring the strength of its balance sheet through sales of its household insecticides and pesticide units. Elsewhere, Europe's biggest wireless firm Vodafone (VOD) reports first half results on Tuesday with analysts eyeing a structural improvement of its margins. Investors will be looking for news on the battle for the control of cash-rich telecoms group Cegetel after Vodafone this week renewed a 6.77 billion euro cash bid for Vivendi's (PEX) 44 percent Cegetel stake. Dutch telecoms group KPN also posts third quarter results next week and analysts expect further operating improvement and news on the sale of its directory services. Investors will scour data on U.S. October retail sales on Thursday and producer prices, industrial production and consumer sentiment on Friday after the Federal Reserve's larger than expected rate cut stoked fears that a global economic recovery was faltering.
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