The outlook for equities is positive next week provided there is no ‘significant weakness’ in U.S. first quarter earnings, Mislav Matejka, European Equity Strategy at JP Morgan, tells CNBC.com.
“The near term environment for equities is supportive due to the continuing Fed pause, as well as the prospect of U.S. growth stabilization in the second-half. Equities should be trading up on the back of that,” said Matejka.
“The key risk to this benign outcome is the U.S. first quarter earnings season,” said Matejka, adding that he thinks U.S. profit margins peaked in third-quarter of last year.
Alcoa kicks of the earning season for U.S. corporates, while France’s AXA starts the week’s European earnings.
Economists are expecting the European Central Bank to keep rates on hold at 3.75% when they meet Thursday. ECB President Jean-Claude Trichet’s press conference, which follows the announcement, will be closely watched for clues on the future direction of rates.
The ECB will “resume hiking in June, reflecting strong domestic activity, which should underpin the euro as well,” predicted Matejka.
G7 Finance Ministers are set to meet in Washington DC Friday, where the weakness of the Japanese yen is expected to top the agenda.