Time for corporate America to confirm Wall St optimism

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It's time now for corporate America to confirm the optimism that has led shares on Wall Street to six weeks of gains.

Alcoa, Intel and JPMorgan Chase & Co are among the first to report and expectations are high.

On Friday, shares in Alcoa surged more than 6 per cent after its stock was made a "buy" by analysts at Deutsche Bank AG and US television commentator Jim Cramer named it his "top stock" for 2011.

JPMorgan's results, which are expected to have improved from the third quarter, may set the tone for expectations for results from other major US and European banks. It might also help offset a court ruling on Friday that returned the focus on whether banks were foreclosing on US residential homes with undue haste.

"It will be important to get out of the box with a positive note," James Dunigan, who helps manage US$105 billion at PNC Wealth Management in Philadelphia, told Reuters.

One additional boost to the week ahead would be news that Verizon Wireless finally would announce plans to sell its version of Apple iPhone. AT&T has been the exclusive US distributor of the phone since it was introduced in 2007.

The corporate news would add to the tone generated from last week's positive economic data, in particular manufacturing growth, notwithstanding the disappointment with the US jobs report on Friday.

"By and large, the economic data continues to improve," Mark Dow, who helps manage US$3.5 billion at Pharo Management LLC in New York, told Bloomberg.

Last week marked a strong start to the new year. The S&P 500 rose 1.1 per cent, the Dow Jones Industrial Average gained 0.8 per cent and the Nasdaq climbed 1.9 per cent.

And investors were in a good mood elsewhere too. In Japan, for example, the Nikkei climbed in excess of 3 per cent in the first four trading days of the year, erasing last year's loss.

US government bond yields also continued their climb, after rising for much of the fourth quarter, with prices falling as the sustained economic recovery comes with risks of inflation which erodes the value of fixed-income securities.

"We have entered the year where consensus expectation has shifted upwards in terms of global growth," Tristan Hanson, a strategist at wealth manager Ashburton in Jersey, told Reuters. "That has manifested itself in bond yields rising."

This week, investors will eye US retail sales data on Friday for indications that consumer confidence really has returned.

The blizzard that blanketed the US northeast coast in between Christmas and New Year's has tempered hopes for freer spending consumers.

On the currency front, Mexico's peso and Canada's dollar were the top performers against the yen as investors became more confident in the North American recovery. The greenback gained 2.5 per cent to 83.15 yen.

The euro weakened 3.3 per cent against the US currency, its largest weekly drop in nearly five months.

A total gross funding amount of €20 billion to €22 billion of issuance by Germany, the Netherlands, Italy, Spain and Portugal is set to hit the primary market this week, Reuters reported, citing Norbert Aul, European rates strategist at RBC Capital Markets in London.

"This amount should feature the first real test of how peripheral EGB [European government bond] supply will be digested by the market in 2011," he said.

In late afternoon New York trading on Friday, the euro was down 0.7 per cent to US$1.2912 on trading platform EBS. The currency is set to weaken further this week unless US economic data disappoint, analysts say.

Gold declined almost 4 per cent last week with part of the pullback reflecting an easing of risk aversion and also investors pausing after pushing gold and other precious metals to a series of recent highs.

"Money is moving out of bonds and gold into the broader equity market as investors are willing to take on more risks thinking that economic conditions have improved," Brian Hicks, co-manager of Global Resources Fund of the US$2.9 billion fund manager US Global Investors, told Reuters.