World Week Ahead: US earnings, China’s trade balance

After last week's carnage on global equity markets, investors are eyeing US corporate earnings for any reason to lift the mood, while China's latest trade data, due on Wednesday, will also be scrutinised.

Last week, the Dow Jones Industrial Average sank 6.2%, while the Standard & Poor's 500 Index slumped 6%. Both suffered the worst start to a year on record. The Nasdaq Composite Index plunged 7.3%.

A better than expected US jobs report on Friday failed to bolster Wall Street as China struggled to contain its plunging stock market.

US employers added 292,000 jobs in December, while the unemployment rate held at 5% as more people began looking for work.

"This is a tsunami of negative psychology being driven by China," Phil Orlando, chief equity market strategist at Federated Investors in New York, told Reuters.

US Treasuries climbed for the week as investors sought refuge, pushing the yield on the 10-year note 15 basis points lower in the past five days. Also, concern about the global economy might give the US Federal Reserve pause when it comes to interest rate increases.

"There's not as much confidence in the scenario that says everything's going to be fine," New York-based BlackRock chief investment strategist for fixed income Jeffrey Rosenberg told Bloomberg. "Rates are not going to end up significantly higher if China and commodity and credit fears end up becoming a much bigger issue."

Fresh clues on the Fed's view might come from a slew of Fed presidents scheduled to speak in the coming days. The Fed also releases its Beige Book on Wednesday. Meanwhile, US President Barack Obama is set to deliver his final State of the Union address on Tuesday.

Alcoa, scheduled to report its latest quarterly results on Monday after the market close, unofficially kicks off a fresh US earnings season.

"There is cautiousness about the earnings season," Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York, told Reuters.

Fourth quarter earnings are now expected to drop by 4.2%, down from a 3.7% decline expected a week ago and the 1.1% increase expected on October 1, according to Thomson Reuters data.

The latest US economic data will arrive in the form of the NFIB small business optimism index, due Tuesday; Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, import and export prices, due Thursday; and the producer price index, retail sales, Empire State manufacturing survey, industrial production, consumer sentiment, as well as business inventories, due Friday.

Analysts remain concerned about oil. Last week oil sank 10% amid concern about the global glut at a time China is increasingly struggling.

"The sentiment is still extremely negative and short positions are still at excessive levels," ABN Amro senior energy economist Hans van Cleef told the Reuters global oil forum. "That makes it also hard to pinpoint the timing of the expected recovery."

In Europe, the Stoxx 600 Index dropped 6.7% last week. That was its largest weekly slide since August 2011, according to Bloomberg.

European Central Bank policy makers are set to gather on Thursday, as will their counterparts at the Bank of England.

The ECB will also publish minutes from its December meeting, when it lowered the deposit rate and extended its bond-buying programme, but failed to boost its asset purchases.

"Clearly the ECB disappointed in December, and we will get an insight about what went on," London-based Societe Generale global head of rates and foreign-exchange strategy Vincent Chaigneau told Bloomberg.

Since then, "the one thing that has happened in particular is the pullback of inflation break-evens. This is something that is going to worry the ECB. They will have to keep the door open to more easing."

Europe's latest economic data slated for release this week includes the euro-zone Sentix investor confidence, due today; euro-zone industrial product, due Wednesday; and euro-zone trade balance, due Friday.

(BusinessDesk)