All eyes are set for the latest round of US corporate earnings after Federal Reserve Chairman Ben Bernanke finally managed to reassure investors that the central bank's stimulus effort is not going to evaporate any time soon.
Markets had been pricing in a tapering of the Fed's US$85 billion a month bond-buying program since late May after Bernanke said as much. But with Bernanke tweaking his message last week, the bulls returned in droves, pushing the Dow Jones Industrial Average and the Standard & Poor's 500 Index to record highs on Friday.
This week, Bernanke is scheduled to deliver his semi-annual monetary policy report to Congress, testifying before the House Financial Services Committee in Washington on Wednesday and the Senate Banking Committee on Thursday.
"Given that Bernanke's comments rattled the market a couple times now in a short period of time, I think many traders are going to be loath to take significant positions ahead of that," Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co in New York, told Bloomberg News.
Last week, the Dow gained 2.2 per cent, the S&P 500 climbed 3 per cent, while the Nasdaq Composite Index rallied 3.5 per cent. US Treasuries also benefitted from Bernanke's restatement.
Yields on the 30-year government bond dropped 9 basis points, while those on 10-year notes declined 16 basis points for the week. The US dollar, however, weakened 1.8 per cent against the euro.
With at least some temporary relief about the Fed's tapering plans, second-quarter earnings are in full focus. Among the companies reporting results in the coming days are financials Citigroup, Goldman Sachs and Morgan Stanley, hot on the heels of better-than-expected results from JPMorgan Case and Wells Fargo on Friday.
Financial companies are expected to post profit growth of 19.6 per cent in the quarter, by far the highest among S&P groups, according to Reuters.
This week will also bring plenty of tech earnings including from Microsoft, Intel, IBM, Google, Yahoo! and Advanced Micro Devices. In Europe, Nokia will report.
Others US companies set to report this week include General Electric, Coca-Cola, Johnson & Johnson and UnitedHealth.
While there's continuing optimism about the US economic recovery, second-quarter earnings might not be all that pretty. Expectations, already far reduced in recent months, might still be too high. Profit at companies listed on the S&P 500 rose 2 per cent last quarter, down from a projection of 8.7 per cent six months ago, according to analyst estimates compiled by Bloomberg.
"The second quarter wasn't particularly robust, and estimates seem to still be too high," Barry Knapp, managing director of equity research at Barclays Capital in New York, told Reuters. "We don't really see any sector where there is a positive risk/reward, just places where there are more likely to be negative surprises."
In the coming days, investors will also get plenty of economic reports. Among these are retail sales, business inventories and the Empire State manufacturing survey, due Monday, the consumer price index, industrial production and the housing market index, due Tuesday, housing starts, due on Wednesday, and the Philadelphia Fed survey as well as leading indicators, due Friday.
The Fed's Beige Book is scheduled to be released on Wednesday.
In Europe, the Stoxx 600 Index gained 2.7 per cent last week. Here, clues on the economy will arrive in the form of the euro-zone consumer price index for the month of June as well as ZEW surveys on economic sentiment for the euro zone and Germany, all due Tuesday.
Political clouds though continue to reappear over Europe in particular at the moment in Portugal, where the country's opposition Socialists are demanding that the terms of the nation's financial bailout be renegotiated.
The demand comes days after a rift opened up in the coalition government, of which the Socialists are part, driving yields on Portuguese government bonds sharply higher. The yield on the 10-year bond surged 90 basis points on Friday alone.