European Factors to Watch-Shares seen lower ahead of earnings

Tue Jan 8, 2013 7:40am GMT

LONDON, Jan 8 (Reuters) - European shares were set to fall on Tuesday and
move further away from a recent 22-month high, with investors becoming cautious
before a new earnings season that could determine the market's near-term
direction.
    Fourth quarter earnings, which kick off with results from U.S. aluminum
giant Alcoa after the market close on Tuesday, are overall expected to be
only slightly better than the lacklustre showing of the third quarter. Analysts'
have sharply cut their estimates in the past months.
    Based on a Reuters analysis, Europe ranks among companies' chief concerns.
Uncertainty about the region and its weak economic outlook were cited by more
than half of the 25 largest S&P 500 firms that warned on results.
 
    "Caution prevails regarding corporate earnings. Both revenues and earnings
will be scrutinised closely, with revenues potentially providing a better gauge
of confidence as opposed to the often cost-driven earnings outcome," Keith
Bowman, equity analyst at Hargreaves Lansdown, said.
    "On the strategy front, a bias towards defensives still persists, although
moves into more cyclical arenas are now occurring."
    At 0735 GMT, futures for Euro STOXX 50, Germany's DAX and
France's CAC were 0.3 to 0.4 percent lower. Financial spreadbetters
earlier predicted that Britain's FTSE 100 would open flat.
    Some analysts, however, remained positive on the market's longer-term
outlook. 
    Exane BNP Paribas analysts saw the potential of double-digit total returns
in 2013 and said in a note that they expected cyclical shares exposed to
business spending to be attractive.
    "We see little reason to expect a flare up in euro-area tension ahead of the
German elections and, alongside the supportive growth/liquidity mix, expect to
see further risk premium compression. This drives our preference for Europe over
the U.S., 'Periphery' over 'Core', and 'Value' over 'Growth'."
    On the macroeconomic front, investors will await chain store sales figures
from ICSC/Goldman Sachs for the week ended Jan. 5 at 1245 GMT and Redbook's
retail sales index of department and chain store sales for January at 1355 GMT.
    On Monday, the FTSEurofirst 300 index of top European shares fell
0.5 percent to 1,161.57 points after hitting its highest since early 2011 in the
morning session. The euro zone's blue chip euro STOXX 50 index fell
0.5 percent to 2,695.56 points.
    "The index is starting to display signs of exhaustion following a run that
has seen it put on 11.5 percent in the space of just seven weeks," Bill
McNamara, technical analyst at Charles Stanley, said.
    "The fact that its 14-day RSI (relative strength index) is beginning to
display bullish divergence suggests that participation in the rally could be
waning. A pull-back might now be necessary before the index can continue its
ascent and a reversion to the short-term uptrend looks like
a realistic expectation."
    The index could fall to 2,670, and if it failed to hold the level, the next
downside target would be around 2,626, he added.
        
     MARKET SNAPSHOT AT 0734 GMT                                    
                                                  LAST     PCT CHG   NET CHG
     S&P 500                                  1,461.89     -0.31 %     -4.58
     NIKKEI                                  10,508.06     -0.86 %    -90.95
     MSCI ASIA EX-JP                                       -0.77 %     -4.30
     EUR/USD                                    1.3106     -0.07 %   -0.0009
     USD/JPY                                     87.35     -0.48 %   -0.4200
     10-YR US TSY YLD                            1.887          --     -0.01
     10-YR BUND YLD                              1.504          --     -0.01
     SPOT GOLD                               $1,648.25       0.1 %     $1.61
     US CRUDE                                   $93.01     -0.19 %     -0.18
    * Asian shares fall on caution before earnings reports     
    * Nikkei down, exporters drag as yen weakness pauses       
    * Wall St edges off 5-year high, awaits earnings           
    * Brent crude locked above $111 ahead of China data        
    * Euro trims losses vs yen on Japan finmin's remarks       
    * London copper climbs on stronger euro, China prospects   
    * Gold edges up on euro, Asia physical buying              
    * Yields edge up before $66 bln US debt sales              
    
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