Eurostocks Week Ahead-Craving earnings reassurance

www.forbes.com Reuters, 01.10.03, 8:47 AM ET By Dominique Vidalon

PARIS, Jan 10 (Reuters) - The reporting season heats up next week and investors hope for positive signals from top European retailers and from technology giants on both sides of the Atlantic that may inject confidence into glum stock markets.

France's Alcatel <CGEP.PA> talks strategy on Tuesday while quarterly earnings from Microsoft (nasdaq: MSFT - news - people) and more sales data from British retailers may bolster markets knocked down by mounting evidence of weak corporate earnings. Profit warnings from the likes of British retailer Dixons <DNXS.L> have nearly derailed a new year rally in major European indexes after three straight years of losses.

Expected U.S.-led military action in Iraq coupled with confrontation between the U.S. and North Korea over nuclear arms and political upheaval in Venezuela also weighed.

"Earnings growth remains elusive and war in Iraq looms large. Until investors can price in a recovery in earnings, markets are going nowhere fast," said Deutsche Bank analysts in a research report released this week.

THE CONSUMER STILL IN LIMELIGHT The week starts with more Christmas season trading updates from top European retailers like Pinault-Printemps-Redoute <PRTP.PA>, Marks & Spencer <MKS.L> and Germany's KarstadtQuelle <KARG.F> -- amid worries consumer confidence, one of key engines of European growth, is starting to crack.

The sector was pummelled this week after Britain's biggest electronics retailer Dixons warned on profits after poor Christmas sales.

"As for year-end sales, it's hard to say if it's just an accident along the way, or if this heralds a bigger slowdown for the retail sector," said CIC analyst Emmanuelle Thollon Pommerol.

British retailers GUS <GUS.L>, New Look <NEW.L>, Woolworth <WLW.L>, Sainsbury <SBRY.L>, Burberry <BRBY.L>, the luxury fashion label, and women's fashion retailer Monsoon <MSN.L> all report next week.

In Germany, KarstadtQuelle AG <KARG.DE>, Europe's largest department store and mail order group, issues a trading statement on January 13, which is expected to add to national sector gloom.

Investors will focus on whether the group meets its stated goal of a three percent decline in sales in 2002.

Its bigger rival Metro <MEOG.DE>, which is less exposed to the difficult German market, this week revealed a four percent rise in sales, falling short of its own goal, while the 2002 sales of French supermarket group Carrefour also disappointed.

In France, household appliances group Seb <SEBF.PA> posts annual sales on Tuesday followed by electrical equipment supplier Rexel <CDME.PA> on Wednesday and by Rexel's parent Pinault-Printemps-Redoute <PRTP.PA> on Thursday.

"There is a risk that (PPR) Q4 sales could disappoint, however Gucci had already reported and mail order seems to be reasonably robust," said BNP Paribas in a research note.

TECH NERVES As a slew of U.S. technology giants open up their fourth quarter books next week -- including Apple Computer (nasdaq: AAPL - news - people) on January 15 and software giant Microsoft and Juniper Networks (nasdaq: AAPL - news - people) on January 16 -- investors brace for further earnings shocks which may hit software and network equipment makers.

"Looking at this week's reports, risk is that the data will be below expectations, which would potspone a profit recovery to the second half of 2003, possibly 2004," said Aurel Leven strategist Jean-Noel Vieille.

Bad news largely outpaced good news in the technology sector this week. Personal computer maker Gateway (nyse: GTW - news - people) warned of a deeper quarterly loss than previously expected while Intel (nasdaq: GTW - news - people), the world largest chipmaker, predicted little improvement in technology spending in the next six months and Dutch electronics firm Philips <PHG.AS> no recovery in the semiconductor market in 2003.

Dutch chip equipment maker ASML <ASML.AS> will post yearly sales on January 16 amid worries over falling capacity and utilisation at its largest client Taiwan Semiconductor Manufacturing Co (TSMC) <2330.TW>.

In France, telecoms equipment giant Alcatel, which last month predicted a furter deterioration in its markets in 2003, will discuss its strategy at a January 14 meeting ahead of full year earnings on January 30.

Investors will focus on whether Alcatel sticks to a prediction that fourth quarter sales should grow by about 20 percent from the third quarter.

Elsewhere investors also await third quarter sales from French heavy engineering group Alstom <ALSO.PA> on January 16 after market rumours on its financial health knocked down its shares this week.

WAITING FOR OPEC Investors also await the outcome of an emergency meeting of the Organisation of the Petroleum Exporting Countries (OPEC) on Sunday to discuss plans to raise output in a bid to cool rampant oil prices which are threatening world economic growth.

"But as long as we do not get a clearer picture on Iraq, uncertainty will continue to steer oil prices," said JCF Group strategist Jean-Luc Buchalet.

U.N. inspectors late Thursday gave a mixed interim report on Iraq's arms programmes.

The next U.N. inspection report is due January 27 and that date is often viewed as a decisive moment on whether Iraq's cooperation has been sufficient to head off military action.

On the data front, investors will scan U.S. December retail sales on Tuesday along with Wednesday's Beige Book and Friday's University of Michigan's preliminary consumer sentiment for January amid growing doubts consumer spending can hold up.