Alcoa kicks off corporate earnings season

Today’s UK opening call provides an update on:

• Alcoa kicks off corporate earnings season;

• Earnings more important now Fed plans to taper;

• German and eurozone data disappoints, although markets push highere;

• Draghi to speak before the Committee on Economic and Monetary Affairs;

• Finance ministers meet to discuss next Greek bailout payment.

The US is going to remain in the spotlight in the coming weeks, as investors try to make sense of companies second quarter earnings at a time when the Fed is looking to withdraw its support and begin tapering its asset purchases.

Corporate earnings season gets under way on Monday, starting with Alcoa after the closing bell. In the last few quarters, earnings season has been largely overshadowed by other major events in the US, with investors focusing more on the fiscal cliff, the sequestration and the Fed’s quantitative easing program. On top of that, in respect to earnings, the bar has been lowered so much that it’s actually very difficult for companies to disappoint.

This time round, with nothing to distract investors and the Fed looking to taper its asset purchases later this year, I expect to see earnings come under a lot more scrutiny. I’m not convinced that investors will let companies off with reporting earnings that are largely driven by efficiency savings and staff layoffs, especially when they’re accompanied by lower revenues as they have been recently. If the stock markets are going to push on higher, we need to see real signs that companies are performing better and are on course for a sustainable recovery. We need proof that the US economy can continue to recover without the support that the Fed has offered since last September.

European markets have had quite a bright start to the week, with all major European indices trading comfortably in the green. US futures are currently pointing to a similar open, with the S&P, Dow and Nasdaq expected to open more than half a percentage point higher.

The positive feeling in the equity markets comes despite the economic data out of the eurozone this morning being rather disappointing. A 2.4% drop in German exports had a negative impact on the country’s trade surplus in May, falling to €14.1 billion from €17.5 billion the month before. Industrial production also fell at a faster rate than expected, falling 1% in May, rounding off a pretty poor morning for German data. The eurozone sentix investor confidence did little to improve things, falling back to -12.6 in July.

Still to come today, we have Mario Draghi who is due to speak before the Committee on Economic and Monetary Affairs. These events are always monitored closely, especially with people looking for more clarity on the ECBs forward guidance, which was offered for the first time on Thursday, although it barely passes as forward guidance given the complete lack of detail.

Finally, we have the eurogroup meeting, where finance ministers will discuss whether Greece will receive the next tranche of its bailout. The Troika was in Greece over the weekend, trying to find out if the government has held up its side of the bargain and implemented the necessary reforms and made the agreed cuts to its spending. Given the complications in the past, we can’t expect this to be a smooth process.

Ahead of the open we expect to see the S&P up 11 points, the Dow up 89 points and the NASDAQ up 19 points.