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Stock markets look to US earnings, Canadian business survey for direction

TORONTO - Investors will have plenty to chew on this week as U.S. companies deliver their quarterly earnings reports alongside a business survey from Canada's central bank that will reveal sentiment on the economy.

Those two factors will be in focus in the coming trading sessions, while a handful of other economic data will also provide direction.

The U.S. banking sector will take much of the attention as several big name financial institutions report their results, including U.S. Bancorp, Bank of America and American Express.

Also on the schedule are Intel, General Electric and Lennar Corp.

While the results will be watched by investors, many analysts will also be attuned to each company's outlook for the coming year, said Bob Gorman, chief portfolio strategist at TD Waterhouse.

The U.S. economy is expected to show further signs of recovery, but the sentiment of leading businesses serves as a barometer for whether executives share the same confidence.

While the fiscal cliff deadline of massive tax hikes and spending cuts was averted Jan. 1, investors still have a host of issues to worry about — not the least of which is the prospect of more debates over unresolved longer-term U.S. budget issues.

The next battle will be over the debt ceiling, or how much the government is allowed to borrow.

Federal Reserve chairman Ben Bernanke will make a speech at the University of Michigan on Monday that could include more insight into the duration of the government's existing bond purchase program.

A glimpse into Canadian business sentiment will be revealed Monday when the Bank of Canada releases its annual Business Outlook Survey, which was compiled in mid-December as the U.S. was enveloped in concerns about the pending fiscal cliff.

CIBC chief economist Avery Shenfeld said it is important to note that the outlook survey questions focus on whether the pace of growth will pick up, or slow down, in the coming 12 months compared with the past 12 months.

"Given how soft the latter proved to be, the bar for optimistic answers is set quite low," he wrote in a note.

"Manufacturing shipments will show a strong rebound, but only enough to recoup the prior month's dip."

Also on the calendar in Canada is the MLS Home Price Index for December, due Tuesday. The data is expected to show a 17 per cent decline over the same time a year earlier, while average home prices will hold up.

In the U.S., consensus expectations for December retail sales on Tuesday suggest that the holiday shopping season was only slightly better than the previous year. Estimates target sales to remain relatively flat as vehicle sales backed off the five-year highs reached in November.

"Retailers reported a mixed bag of results for the holiday season, resorting to more aggressive discounting as December unfolded to keep sales momentum going," said Michael Gregory, senior economist at BMO Capital Markets.

The U.S. housing recovery is expected to show further recovery when data on housing starts for December is released Thursday. Consensus expectations are for an increase of 890,000 starts on an annualized basis.


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