Preview – Europe Eyes Negative Start, Rebound Predicted
Equity investors may look for bargains as trading begins next week following the worst five-day stretch for U.S. stocks since August 2004 and the poorest in four years in Europe, according to Mike Lenhoff, Chief Strategist and Head of Research at Brewin Dolphin Securities.
Collectively, around $1.5 trillion in value has been loped off global equity indices since the China-led selloff earlier this week.
“There’s going to be some selling pressure for a while… but equity markets are oversold at the moment. Investors will be looking for buying opportunities and money will come in to support the market,” Lenhoff told CNBC.com.
Lenhoff went on to say that he expects European stocks to find upward momentum having hit a 10% drop from February highs.
It will be slightly less for U.S. markets due to a lag effect, he added.
Mining stocks may see a snappy pick-up, having been sold off aggressively, said Lenhoff, but the positive trend will be general and lift the majority of stocks.
Companies reporting earnings next week include Russian energy giant Gazprom, HSBC the world’s third-largest bank, which recently announced it would suffer a $10 billion hit to its U.S. sub-prime mortgage business. Other corporate results are expected from France Telecom, hotels Accor and German utility E.On, which is currently locked in an 18-month long takeover battle with Spanish rival Endesa.
In the foreign exchange markets, the continued unwinding of so-called carry trades should continue to support the yen against both the dollar and the euro while in energy markets, oil is expected to rise further as cold U.S. weather and the lack of progress in cutting a deal between the United Nations and Iran on its nuclear programme.
With interest rate decisions from the European Central Bank and the Bank of England on Thursday, investors will also have plenty of economic news from which to glean clues as to the overall health of the global marketplace.
The BOE is expected to hold interest rates steady at 5.25%, but as we’ve seen in the recent past, it’s always prepared to surprise. Economists are far more agreed on the 25 basis point hike from the ECB, although they’ll be closely watching bank president Jean-Claude Trichet’s subsequent press conference to determine if the tightening cycle is set to continue.
In politics, EU leaders will attend their Spring Summit which will attempt to launch a common European energy policy, Thursday and Friday.