European stocks are set to be dominated by events in the U.S. next week, as the Federal Reserve is likely to cut rate cuts further and the big three U.S. brokerages deliver earnings to volatile markets.
“The market is pricing in a 75 basis point cut (from the Fed), anything less then that … is going to be disappointing,” Patrik Schowitz, European equity strategist at HSBC, told CNBC.com adding that earnings from the likes of Bear Stearns, , Morgan Stanley and Goldman Sachs are more of an uncertainty.
Doubts over the investment houses intensified Friday as Bear Stearns called on emergency funding from the Fed after its liquidity position deteriorated due to a cash crunch.
The intraday equity movements around these results and the Fed decision could be very hard to predict, according to Schowitz, and investors should “prepare for a volatile week.”
Even established sector patterns can’t be trusted, Schowitz said, but financial stocks will remain a bellwether for overall market sentiment and lead the major European indexes higher or lower as they are bought or sold.
Meanwhile, troubled UK bank Northern Rock will be back under the microscope at the start of next week as Ron Sandler, the man put in charge after its nationalization, will attempt to satisfy European regulators and repay billions of pounds to the UK government.
On Wednesday investors should get more insight into the Bank of England’s monetary policy, as the central bank publishes minutes from its recent meeting, where UK interest rates were left on hold.
European earnings will also add to the week’s events, with industrial gases and engineering company Linde and building equipment distributor Wolseley reporting numbers.
The trading week will be cut short as Friday is a public holiday. European markets will re-open after the Easter break on Tuesday March 25.