By Jeremy Gaunt, European Investment Correspondent
LONDON, Feb 1 (Reuters) - The question facing investors as they enter the first week of February is what will it take to change the stubborn trends of global financial markets.
A glib answer appears to be: quite a lot.
One month into the new year, investors are still struggling to crawl out of the uber-bearish swamp that was 2008.
Stocks had a negative January. Relatively safe short-term government bonds and the U.S. dollar remained in favour. Gold continued a three-month upward climb. All very familiar.
Above all, the headwinds that have held investors in this pattern for more than a year are not only still there but spreading.
Concerns about a declining global economy, for example, can now be compounded by fears China will fare worse than previously believed. Hopes that the financial crisis is over, meanwhile, have been doused by new losses at various major banks.
Trade protectionism, deflation and even the collapse of the euro zone are now openly discussed in financial circles, even if they are more often dismissed than taken seriously.
"There is this dawning realisation that the worst may not be behind us," said Koray Yesildag, an economist at hedge fund specialists GAM.
Not that there aren't a few glimmers of light out there to cheer those hoping for a return to economic and financial stability.
For one thing, although world stocks as measured by MSCI fell in January on top of their 43.5 percent slide in 2008, they are still above their November low, which may yet prove to have been the bottom.
They essentially have been trading in a range of roughly 7 percent either side of a mid-point that is about 18 percent above last year's trough.
Some risk appetite can also be found by looking at flows to emerging market equities and debt.
And on the economic front, there have been little flickers such as better-than-forecast, albeit still poor, U.S growth, an unexpected improvement in German business sentiment and a similarly unheralded uptick in U.S. home sales.
But the overall climate is one of gloom, with investors expecting things to get better eventually but not yet.
"For the coming weeks, we do not expect markets to improve much," Klaus Wiener, head of research at Generali Investments, wrote in his February outlook.
The "key reason is the globally synchronised recession and the impact it will have on company earnings."
PROFITS AND LOSS
Earnings expectations have plummeted in a quite remarkable manner. Last July, analysts were looking at S&P 500 company earnings growth of around 59 percent in the fourth quarter, according to Thomson Reuters data.
A combination of actual Q4 2008 earnings and expectations for companies still to report suggests the final figure will be a decline of around 28 percent.
Quite a few investors also believe earnings expectations for this year and next remain too high. At the same time, there have been some positive surprises -- American Express, Texas Instruments and Siemens for example.
A clearer picture should come this week with the release of results from some major U.S. companies running a gamut of industries. These include Motorola, Dow Chemical, Cisco, Kraft and Philip Morris.
In Europe, there is a similar range of big names, including the likes of Vodafone, but the focus may well be more on the week afterwards when a number of big banks report.
For, over the long term, it is the banking industry that will probably be the trigger for a turnaround in current bearish investment patterns.
Yesildag of GAM reflected the views of many investors and analysts when he said financial market players still needed to know how many toxic assets there are out there despite huge write downs.
"You need to see some much clearer recognition of the problems," he said. "The degree of uncertainty in markets has to be reduced."
DOWN TOGETHER
A new wrinkle for investors which might get some attention this week, meanwhile, is that on a couple of trading days recently equities and bonds have sold off together.
This is a break from the set patterns of the past few years when any momentary rise in risk appetite for equities prompted selling of fixed income and vice versa.
Such a move can be a signal of deepening risk aversion among investors, essentially selling whatever they can.
But the currency trades did not match such a move and Goldman Sachs pointed out in a note that macroeconomic data was "not suggesting any acceleration in the pace of slowdown".
Wayne Bowers, international chief executive officer of Northern Trusts Global Investments, said the joint sell offs could just reflect asset allocation shifts by pension funds and the like as they begin to see their 2008 results.
It is still likely to be something that investors watch closely. (To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub)