Economy slows and now comes the earnings season

Sat Jul 7, 2012 4:43pm EDT
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By Richard Hubbard

LONDON (Reuters) - Growing disillusion over the latest steps to resolve Europe's debt crisis and policy easing by major central banks will dominate market sentiment in the coming week, with equity investors also braced for a new company reporting season.

Testimony by European Central Bank President Mario Draghi to Europe's parliament on Monday followed by a meeting of euro zone finance ministers will keep Europe's problems centre stage.

Germany's constitutional court will also hear complaints midweek about the euro area's new permanent bailout fund, which was due to have begun operating on July 1.

But with aluminum giant Alcoa (AA.N: Quote) kicking off the Q2 U.S. reporting season on Monday, the focus could quickly switch to the impact of the crisis on corporate performance.

"The Q2 earnings season is not likely to be good," said Manish Singh, head of investment services at Crossbridge Capital.

Overall, second quarter earnings for companies covered by the broad S&P 500 index .SPX are expected to decline by around 1.1 percent compared with the same quarter of 2011, he said.

"If I were already on holiday, I would not hurry back and would extend until the end of the month," Singh said.

Global equity markets have outperformed bonds this year despite evidence of steady outflows from traditional managed funds. The performance gap has widened in the past five weeks.   Continued...

Traders look at electronic boards at the stock exchange in Madrid July 6, 2012. REUTERS/Andrea Comas