Optimism about steady borrowing costs, following Friday's United States report showing falling producer prices, could contribute to the positive sentiment and give financial shares an extra boost.
"In general, the favourable development in the bond market will drive banks' stocks up," predicts Guenter Senftleben, an analyst at Bankgesellschaft Berlin.
With Wall Street closed on Monday, for the President's holiday, other markets may get off to a slow start. That will change on Tuesday when the earnings season resumes with SAS, Adolph Coors, BF, Goodrich, Liz Claiborne, Barclays, Scania, Nordbanken and Usinor Sacilor - Europe's biggest steel maker - all reporting results. They'll be followed by Bell & Howell, Astra and Volvo on Wednesday, Investor and Rank on Thursday, and TRW and UBS on Friday.
Dollar earners, including Michelin and Rhone-Poulenc, Benetton and Pirelli, Daimler-Benz and Bayer, Nestle and ABB, and Sony, Toyota and Honda, may also rise, lifted by the US currency's recent strength. The dollar closed on Friday near a 33-month high against the mark and a four-year high against the yen.
In the UK, stocks are expected to continue rising, particularly among the banks. "We've got about another 50 points" to rise in the coming week, says Antony Hardy, an investment manager at the Church Commissioners, which oversees pounds 1.8bn of investment.
Gains in London could be capped, however, by concern about the pound's strength, which hurts key exporters like Glaxo Wellcome and Imperial Chemical Industries. Copyright: IOS & BloombergReuse content