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The Canadian Press - ONLINE EDITION

Stock markets to be guided by heavy slate of corporate earnings reports

TORONTO - Earnings will be front and centre on North American stock markets this week.

Geopolitical concerns will also continue to cast a shadow after a Malaysian Airlines plane was shot down by a missile in Ukraine last Thursday, while Israel ramped up its fight against Hamas militants last week in launching an offensive in Gaza.

The TSX had a positive week, rising 141 points or 0.93 per cent with gains led by the gold and financials sector. But industrials were also strong in the wake of a solid quarterly earnings report late in the week from Canadian Pacific Railway (TSX:CP), which beat expectations.

The sector was also supported by Canadian National Railway (TSX:CNR), which ran ahead in advance of the release of its earnings on Monday. Investors are expecting a similarly strong performance from CN as both railways benefit from clearing a huge grain backlog and transporting increasing amounts of Canadian and U.S. crude by rail.

"You have all this new supply that can come online but how are you going to move it around?" said Gareth Watson, vice-president, investment management and research, Richardson GMP Ltd.

"You can’t put up a pipeline overnight and, as such, it’s moved into rail. Whether that’s the preferred way from a safety and environmental standpoint, that’s up for debate but it’s one of the few options that we have."

Both CP and CN hit fresh 52-week highs last week.

It's a much different story for another large TSX company. Mining giant Teck Resources (TSX:TCK.B) posts earnings on Thursday and what with depressed coal prices and copper prices stuck in a narrow band around US$3.15 a pound, chances of a strong report are low.

"No one is expecting that much and I think they probably will come in something close to that consensus," said Wes Mills, chief investment officer, Scotia Private Client Group.

"I think the real issue then is, OK, you have a lot of bad news that’s priced into the stock, what does it do from there?"

On the upside, he notes that the stock has a dividend yield of 3.5 per cent and could be set for gains if, in fact, China has a modest reacceleration in growth.

Other big Canadian corporations posting earnings this week include Husky Energy (TSX:HSE), telecom giant Rogers Communications (TSX:RCI.B) and grocer Loblaw Cos. Ltd. (TSX:L).

The Dow Jones industrials registered a gain of 0.92 per cent gain last week amid a general strong run of earnings.

The pace picks up this week as traders look to market heavyweights, including chemical giant DuPont, consumer products company Kimberly Clark, The Coca-Cola company, McDonald's, Microsoft, airplane maker Boeing and automakers Ford and General Motors.

Traders will also keep an eye on the worsening situation Ukraine in the wake of the downing of the Malaysian Airlines jetliner.

Damage on stock markets was confined to just Thursday last week but that could change.

"Where it does have an impact is if (Russian president Vladimir) Putin doesn’t back down a bit and try to play fair," said Mills. "Then they will see him as really playing hardball."

He notes that the U.S. had announced broader sanctions against Russia late last week, but they have been largely aimed at people close to Putin. That, said Mills, could change.

Meanwhile, it's a rather thin week for economic data. The major Canadian event is the May reading on retail sales. Economists expect Statistics Canada to report Wednesday that sales rose 0.5 per cent for the month.

In the U.S., traders will digest the latest data on inflation, home sales and durable goods orders.

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