RPT-GLOBAL MARKETS WEEKAHEAD-Big tests lined up for investors

(Repeats Friday’s weekahead with U.S. budget and NYSE Euronext
rejection of Nasdaq/ICE takeover bid)

By Jeremy Gaunt, European Investment Correspondent

LONDON, April 10 (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 “normalized,” 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 33-month high
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, 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 increase during the past week.

A test of this will come 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 of in the United States in the
coming week with a test of three key sectors — industrial
production from aluminum company Alcoa Inc (AA.N: Quote, Profile, Research), financials
from investment bank JPMorgan Chase (JPM.N: Quote, Profile, Research) and Internet
bellwether Google Inc (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, British 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, 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 — epitomized by the ECB’s rise 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 normalize 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.

A potential government shutdown was averted late on Friday
after U.S. President Barack Obama signed a short-term spending
bill following extended negotiations over the federal budget.

With just over an hour to spare before a midnight deadline,
Obama’s Democrats and opposition Republicans agreed to a
compromise that will cut about $38 billion in spending for the
last six months of this fiscal year. For details, see
[ID:nUSBUDGET]

On Sunday, NYSE Euronext (NYX.N: Quote, Profile, Research) said its board of
directors rejected an unsolicited takeover bid by Nasdaq OMX
Group Inc (NDAQ.O: Quote, Profile, Research) and IntercontinentalExchange Inc (ICE.N: Quote, Profile, Research) and
reaffirmed its commitment to merging with Deutsche Boerse AG
(DB1Gn.DE: Quote, Profile, Research).

The company said Deutsche Boerse’s $10.2 billion offer
would create “substantially more long-term value” for
shareholders and called the $11.3 billion counter-offer from
Nasdaq and ICE “strategically unattractive with unacceptable
execution risk.” [ID:nN10204369]
(Additional reporting by Ryan Vlastelica in New York; Editing
by Toby Chopra and Maureen Bavdek)

RPT-GLOBAL MARKETS WEEKAHEAD-Big tests lined up for investors