GLOBAL MARKETS WEEKAHEAD-Big tests lined up for investors

(Repeats Friday’s story without changes)

By Jeremy Gaunt, European Investment Correspondent

LONDON, April 8 (Reuters) – The second quarter has started
with a bang as equities, commodities and other riskier assets
have soared. Now come some big tests.

First, U.S. companies begin a new earnings reporting season
in the coming week and investors will be watching to see not
just how the companies have done — probably pretty well — but
how things might shape up in the quarters to come.

That is not nearly as clear.

Second, the International Monetary Fund-World Bank spring
meeting should provide a steady stream of updates on the real
strength of the world economy, its inflationary pressures and
general financial stability.

One key for investors, a week after the European Central
Bank raised interest rates, will be to glean how much things
have “normalised”, prompting more policymakers to accelerate the
removal of cheap money.

For the time being, however, financial markets are embracing
risky assets with something akin to passion.

World stocks as measured by MSCI hit a fresh 33-month high
on Friday, riding out worries ranging from Japan’s costly
earthquake and Portugal seeking a debt bailout to the threat of
the budget-less U.S. government shutting down.

Emerging market stocks (.MSCIEF: Quote, Profile, Research), laggards for much of the
first quarter, have been particularly hot, rising as much as
11.6 percent from a March 17 low.

Some of this has been due to increasing investor confidence
that growth and inflationary pressure in key emerging economies
such as China are being controlled, as exemplified by China’s
rate hike during the past week.

A test of this will come on Friday, when Chinese first
quarter GDP and inflation numbers are due.

“We expect Chinese GDP growth to weaken over the course of
the year, staging a soft landing,” private bank Sarasin said in
a note. “But there is a long way to go.”

PEAKING?

MSCI’s all-country world stock index has actually risen 103
percent since its financial crisis low in March 2009 — partly
prompted by a string of sterling corporate earnings seasons.

The question now is whether these are about to peak.

The latest season kicks off in the United States in the
coming week with a test of three key sectors — industrial
production from aluminium giant ALCOA (AA.N: Quote, Profile, Research), financials from
investment bank JPMorgan Chase (JPM.N: Quote, Profile, Research) and internet bellwether
Google (GOOG.O: Quote, Profile, Research).

Overall, the U.S. reporting season is expected to be
reasonable. Thomson Reuters Proprietary Research projects first
quarter earnings to have risen 11.5 percent year-on-year.

This compares, however, to a 37.2 percent increase in the
fourth quarter of last year.

Some investors, indeed, are beginning to suggest that the
days of robust earnings growth will soon come to an end.

“The year-on-year increase now is going to decline into
single digits,” said Giorgio Radaelli, chief strategist at
wealth manager BSI.

In a similar vein, UK private bank Coutts told its clients
in the past week that U.S. profit margins may have reached their
peak.

It is looking for a squeeze from rising input costs. The
price of Brent crude oil (LCOc1: Quote, Profile, Research), as one example, has risen more
than 30 percent so far this year.

IMF/WORLD BANK

The price of oil and other commodities, meanwhile, have
begin to worry central banks — epitomised by the ECB’s hike in
the past week, its first since 2008.

The IMF/World Bank spring meeting should provide updates, as
will a G20 fringe meeting of finance ministers and a summit of
leaders from Brazil, Russia, India and China, in China.

Investors will be looking for any sign that world monetary
policy — both the quantitative easing money-printing from the
developed world and the unorthodox quantitative tightening
credit curbs designed as a response in many emerging economies
— needs to normalise and tighten up from here.

The risk markets recovery of the last two years has been
fuelled by abundant liquidity.

If that is to dry up, investors will need to be confident
that the world is “normal” enough for things to continue.

(Editing by Toby Chopra)

GLOBAL MARKETS WEEKAHEAD-Big tests lined up for investors