* Euro zone crisis to keep markets under pressure
* Second quarter earnings season to challenge equity rally
* BoJ may join other central banks in easing
* China to confirm gradual slowdown
By Richard Hubbard
LONDON, July 6 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
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 aluminium giant Alcoa 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
Overall, second quarter earnings for companies covered by
the broad S&P 500 index 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.
The MSCI world equity index is up over five
percent since June 1, while the Stoxx Europe 600 index
gained 4.7 percent in June and was up over two percent in the
first week of July.
MSCI's broadest index of Asia-Pacific shares outside Japan
logged a rise of about 1.2 percent for the first
week of the third quarter and is near a seven-week high.
It's a similar story in major U.S. markets, with a strong
June performance so far matched by solid gains this month.
"Bond markets are pricing in a much more dire situation than
equities, which could leave equities a bit vulnerable in the
short term," said Colin Robertson, Global Head of Asset
Allocation at Aon Hewitt.
A big focus in the first week of the new reporting season
will be the revelation from mega-bank JPMorgan Chase of
the scale of losses from is disastrous derivatives trades, due
to be announced when it reports on July 13.
Investors will also be digesting the central moves of the
past week, when the European Central Bank, the Bank of England
and the People's Bank of China eased policy in different ways to
fight off the global slowdown.
The Federal Reserve's Open Market Committee (FOMC) doesn't
meet until the end of the month, but minutes from its latest
meeting are due out on Wednesday.
They should shed more light on the central bank's current
view, although Friday's disappointing payrolls report is likely
to be more influential.
U.S. non-farm payrolls expanded by just 80,000 jobs in June,
falling short of forecasts though they were slightly higher than
a revised May reading of 77,000 new jobs.
The Bank of Japan will give its views on the global
environment and the health of its own economy when it concludes
a two-day meeting on Thursday (July 12th) and publishes its
interim forecasts for growth and inflation.
"The decision on whether to provide additional stimulus is
likely to be finely balanced," said David Rea, Japan Economist
for Capital Economics.
"It has been our call since before June's meeting that the
(BoJ) Board would ease in July and after weighing up the
evidence, we are sticking to this call for an additional 10
trillion yen ($125 billion) of asset purchases at this meeting."
CHINESE DATA DUMP
The big data release of the week will come on Thursday when
China unveils its second quarter economic growth numbers, and
June data on industrial production and retail sales.
A Reuters poll showed economists expect the data to show
China's economy expanded in the second quarter by 7.6 percent
from a year earlier, its weakest performance since the 2008-09
financial crisis and the sixth straight quarter of lower growth.
The big worry for Asia's exporting nations, such as China,
is a possible slide by the world economy into a repeat of the
financial crisis of 2008/2009, when global trade ground to a
But the announcement by the PBOC on July 5 of China's second
surprise rate cut in the space of a month will offset much of
any negative impact from the data
Investors also get data on German trade performance in May
and UK industrial and manufacturing production.