LONDON (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.

Stocks had a negative January. Relatively safe short-term government bonds and the U.S. dollar remained in favor. 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 realization 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 (.MIWD00000PUS) 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 synchronized recession and the impact it will have on company earnings.”
Earnings expectations have plummeted in a quite remarkable manner. Last July, analysts were looking at S&P 500 (.SPX) 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 (AXP.N), Texas Instruments and Siemens (SIEGn.DE) 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 (MOT.N), Dow Chemical (DOW.N), Cisco (CSCO.O), Kraft (KFT.N) and Philip Morris (PM.N).