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Week Ahead: lingering threats to the runaway rally

Our preview of the main financial events of the coming week.

 
Week Ahead: lingering threats to the runaway rally

The 2013 stock market rally will be tested next week as corporate and economic reports continue to pour in and questions about a correction linger.

A Friday afternoon rally augurs well. A decent labour market report provided renewed optimism about the US economy – and market support – allaying fears generated by Wednesday’s report showing the economy contracted in the fourth quarter of 2012 by 0.1%.

US economic stats have less potential to move the markets over the coming week, with highlights including the ISM non-manufacturing index on Tuesday and trade data on Friday.

Deeper problems in the US economy may start to garner market attention though: while the debt ceiling deadline has been extended, spending cuts loom closer – they were postponed for two months at the start of the year – and the Washington press report that the fast approaching cuts are ‘generating little activity in Congress to avoid them’.

In Europe too, bigger hurdles draw near. February is the month of the Italian presidential elections will be held (24-25th), with the gap between centre left coalition leader Pier Luigi Bersani and former prime minister Silvio Berlusconi – who is promising a ‘showdown with Germany’ over austerity – closing fast. 

More imminently, the European Central Bank holds its monthly policy meeting on Thursday, with no new action expected as president Mario Draghi likely draws attention to the confidence in financial markets. And the first summit of European leaders in 2013 takes place in Brussels, to agree on an EU budget. 

In the UK, investors are set for another big week of corporate results. Energy companies will continue to update investors after Shell’s disappointing numbers on Thursday, with BG Group (BG.L) and BP (BP.L) reporting. The City is steeled for news of another tough quarter for BG Group, though the majority of analysts still say it is a long-term ‘hold’. The shares are yet to recover from November’s abrupt fall when the gas producer warned of poor production in the coming year.

Further details on the UK’s economic performance in the last quarter of 2012 will be available, providing more substance after a preliminary reading – using just 44% of the data that will eventually be crunched – showed the economy contracted by 0.3%. Reports on December industrial output and construction are due on Thursday and Friday. January’s services PMI will be published on Tuesday.

None of this is likely to make any difference to the Bank of England’s stimulus plans, economists say, with no new moves expected from this week’s monetary policy meeting which concludes on Thursday, partly because of signs that the bank’s Funding for Lending scheme is starting to work.

Attention might be elsewhere anyway. Mark Carney, who becomes Bank of England governor in July, is due in front of MPs from the Treasury Committee on Thursday, to be questioned on whether the Bank is making decisions based on the right targets.

Finally just ahead of the start of Chinese New Year, on Friday investors will be dealt the latest reading of China consumer prices. The report, which always has the potential to move global markets, is expected to show an easing of inflation from 2.5% in December.

FTSE Diary

In a quiet start to the week, Randgold (RRS.L) is among UK-listed companies providing interim reports on Monday

The next day BG Group will present full-year results, while half-year figures are due from BP and ARM (ARM.L).

Hargreaves Lansdown (HRGV.L) will be in focus on Wednesday when it publishes interim results, as will GlaxoSmithKline (GSK.L) when it delivers final year numbers. ENRC (ENRC.L) and Compass (CPG.L) provide trading statements on the same day.

On Thursday, Tui Travel (TT.L) is due to announce interim numbers, while final reports are due from companies including Smith & Nephew (SN.L) and Ocado (OCDO.L).

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