Nasdaq: Beginning to break through its March high of 1879. If confirmed this would signal a new bullish wave for the Nasdaq.

In the US, the corporate earnings season could not have started on a stronger note and has fuelled another phase of optimism and risk appetite amongst investors. According to Bloomberg, so far, earnings have beaten analysts’ estimates by a average of 16% for the 38 companies in the S&P 500 that have released results since 8th July. Profits have fallen an average 35% in the second quarter and are expected to drop a further 21% from July through to September. But signs are increasing that a lot of good news has already been priced into the recent share price rally. The most recent example of this has been Bank of America results Friday, which beat expectations but the stock declined on the day. However, during the course of the week, their better then expected results had arguably been discounted reflected in their weekly 8.5% gain. Going forward, it appears that analysts have underestimated the outlook for companies. This suggests we can expect corporate earnings to continue to beat estimates and that should provide further momentum to the equity market. This week, 143 companies of the S&P 500 are due to release Q2 earnings.

However, despite last week strong rally in equity markets, only one of the key indices is close to breaking through their previous March highs. These levels are critical resistance marks and if by the end of the earnings seasons they have not been penetrated then identifying a fresh catalyst to break them could become problematic and leave us back to a summer of range trading.

As such, the levels to monitor are Dow Jones (8878): S&P 500 (956): Nasdaq (1879) – the only index that is beginning to break through its March highs: FTSE 100 (4517): Nikkei 225 (10170) and the Hang Seng (19162).

Economic data this week will also be closely eyed, particularly in the UK. On Tuesday attention from the markets and no doubt the media will focus on public finances with PSNB and PSNCR due for release. There is no doubt the UK has started the fiscal year in a miserable state and the market is not expecting to see any improvements, as yet. Wednesday sees the release of the July MPC minutes. QE is the main focus on these minutes and given the speeches last week by Bean there could be some indication that the BOE is looking to further extend QE. Also on Wednesday is the release of the CBI quarterly industrial trend survey which in June showed signs of faltering particularly in exports. Given that there has been little evidence of an improvement in external demand the figure is expected to remain weak. Better news may come through on Thursday with the release of retail sales. The good weather in June is likely to have helped boost the data and this so far has been reflected in other indicators such as BRC measure and CBI sales balance. The week ends of Friday with the release of preliminary Q2 GDP, which is still expected to show that the economy remains in recession. Consensus forecasts is for -0.3%qoq versus a Q1 decline of -2.4%.

In the US, the data is sparser with the focus being centred on corporate results. On the economic front the key event is Bernanke’s semi-annual testimony to the House on Tuesday and then the Senate on Wednesday. Regarding data, the US releases conference board, existing home sales, jobless claims and University of Michigan survey during the week.

For Europe, the focus in on business surveys with the French INSEE and German IFO due for release at the end of the week. Advance PMI’s on Fridays will also generate interest as investors weigh up just how fast the European economy is still contracting.

Sources: Reuters: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:

Please note this report provides a guide to some of the relevant areas that individual investors should consider discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.