The TSX ended last week down 217 points or 1.74 per cent after buying sentiment took a hit from a gloomy forecast from the International Monetary Fund. The IMF reduced its growth forecast for the world economy to 3.3 per cent this year from its previous estimate of 3.5 per cent.
Expectations for next year were also pared back as the IMF forecast for growth in 2013 is 3.6 per cent, down from 3.9 per cent three months ago and 4.1 per cent in April.
The TSX is still up about 7.5 per cent from the market lows of early June, largely because of a commitment from European Central Bank president Mario Draghi to do whatever it takes to preserve the monetary union and another round of quantitative easing by the U.S. Federal Reserve.
"You’ve already had a pretty good rally," said Colin Cieszynski, market analyst at CMC Markets Canada.
"You may see in the coming months there’s not enough to take markets much further but there’s not enough to knock them down either and you end up in this range bound trading for markets."
U.S. markets also ended last week lower with indexes failing to get a bounce from a strong earnings report from banking giant JPMorgan Chase, which beat expectations for earnings and revenue.
But expectations for this earnings season are muted with analysts expecting a 2.1 per cent year-over-year decline in S&P 500 operating earnings, which would be the first year-over-year drop since the recession that followed the 2008 financial collapse.
"Expectations have come down and the markets have gone up so it’s looking like a lot of (optimism) has probably already been priced into the market," said Cieszynski.
"So the actual reaction becomes fairly muted. You really need a real positive surprise at this point to move the needle very far."
The quarterly reporting season in the U.S. kicks into high gear this week with investors looking to results from Citigroup on Monday, chip giant Intel and beverage giant Coca Cola Tuesday, Bank of America and American Express Wednesday, Advanced Micro Devices Thursday while McDonald's is among those handing in numbers on Friday.
The quarterly reporting season in Canada tends to lag the U.S. by a couple of weeks.
On the economic front, markets will open Monday morning digesting weekend reports from China on the latest readings on the country's trade balance along with consumer and producer prices. And the latest reading on Chinese gross domestic product growth comes out Wednesday night.
The Chinese economy has been instrumental in helping the global economies recover from the 2008 financial collapse. But expectations from the world's second-biggest economy have been diminished as the Chinese government slowed economic growth in order to get a handle on persistently high inflation.
"Expectations are pretty low," added Cieszynski.
In Canada, traders will look to the latest reading on existing home sales on Monday. Economists expect sales to have fallen in September by 15 per cent year over year.
"There is no denying that underlying sales have softened meaningfully since new mortgage insurance rules kicked in July 9," said BMO Capital Markets deputy chief economist Doug Porter in a commentary.
Statistics Canada releases its latest reading on inflation Friday with the consensus calling for a 0.3 per cent rise in September from August, which would translate into 1.5 per cent rise year over year.
In the U.S., investors will look to more data suggesting that the U.S. housing sector has finally turned the corner following the collapse in home prices that sparked the 2008 crisis.
Housing starts for September are expected to come in at an annual rate of 770,000, up from 750,000 in August.
Meanwhile, existing home sales are reckoned to come in at an annual rate of 4.72 million, down slightly from August.
"The decline should still leave sales 11 per cent above year-ago levels," said BMO Capital Markets senior economist Sal Guatieri.
Traders will also take in U.S. September retail sales before the market opens Monday morning. Sales are expected to have climbed 0.8 per cent, down a bit from the 0.9 per cent rise in August.