By Jeremy Gaunt, European Investment Correspondent
LONDON, April 9 (Reuters) - The earnings season that begins in earnest next week is not expected to bring much joy to investors but it could go some way towards helping them decide whether markets and economies have turned a corner.
Investors took their feet off the pedals a bit this week and were heading for the first losing week for global equities in the past five.
But losses were relatively small and the arguments continue to rage about whether a bottom to the economic and financial morass has been reached or whether recent gains in both data and stock indexes are simply upward blips on the way down.
Morgan Stanley said this week, for example, that the bear market is not over. It cut its recommended exposure to stocks.
A few days later, however, competitor Goldman Sachs said that market conditions had improved a lot since January and that economic data pointed to the cycle stabilising.
"The world feels better than it did," top economist Jim O'Neill's team said in a note.
Credit strategists at Citi have underlined this by starting to rotate out of defensive company debt into early cyclicals.
MSCI's all-country world stock index is up around 5 percent in April, cutting its year-to-date losses to less than 7 percent. Earlier in the year it was down as much as 24 percent.
Less money is being stored in some supposedly safe-haven assets. Ten-year U.S. Treasury yields have risen as much as 30 basis points over fewer than nine days.
Fund tracker EPFR Global also reports $9 billion net outflows from money market funds last week for a first quarter total net outflow of more than $30 billion.
GRIM READING
Into this mix comes the first-quarter corporate reporting season, kicking off next week with major U.S. companies such as Goldman Sachs, Intel, JPMorgan, and Citigroup.
Banks will eat up a lot of the attention because it is they who started the rot. But expectations are very low across the board.
According to Thomson Reuters Proprietary Research, the market currently estimates the first quarter earnings growth rate for U.S. S&P 500 companies to be minus 36.6 percent from a year earlier.
Earnings are expected to fall in all 10 sectors in the index year-over-year, the highest number of sectors recording negative growth since Thomson Reuters began tracking this measure in 1998.
"I'm expecting everything to disappoint," Alan Brown, chief investment officer at fund managers Schroders, told Reuters in an interview.
The flip side of this, however, is that when expectations are so low, any kind of upside surprise -- or, as with current economic data, less-dire-than-feared announcements -- could lift sentiment quite sharply.
After the market closed on Tuesday, for example, Alcoa Inc. , the largest U.S. aluminium producer, reported a first-quarter net loss of $497 million compared with a profit of $303 million, a year earlier.
But on Wednesday its shares gained 3.5 percent as some analysts found positive nuggets in cost-cutting and liquidity strengthening moves.
"GREEN SHOOTS"
Perhaps the most significant element of Alcoa's earnings for the broader global financial market, however, were some relatively bullish comments by chief executive officer Klaus Kleinfeld about the state of his market.
"There are some signs in many of our end industries for bottoming out," he said.
Such a finding supports the "green shoots" view of the world which is finding solace in small improvements in economic data.
Kleinfeld also touched on an issue dear to the hearts of those seeking signs of future demand -- he said inventories were now at unsustainable lows throughout Alcoa's supply chain, its customers and their customers.
After low inventories usually comes increased production. See next Wednesday for U.S. industrial production and Thursday for the euro zone's.
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(Editing by Ruth Pitchford)