A generally positive week for markets with some solid euro area sovereign issuance had a disappointing end on Friday. First, the debt markets were hit by a soft Italian debt sale. Then rumours that S&P are likely to downgrade the sovereign ratings, along with worries about profits, caused a sell-off, in equity markets. This week poses further hurdles as expectations are high that Greece could conclude negotiations for debt rescheduling (PSI), with concern shifting to participation and the possibility that any involuntary action will be deemed a credit event and so trigger CDS contracts, exacerbating the banking crisis. Meanwhile, Merkel, Sarkozy and Monti meet in Rome at the back end of the week and are likely to focus on the euro area 'compact' and the withholding tax.
Today sees little economic news with only the Italian CPI for December being of any note. However, given that concerns are focused elsewhere it would need an extraordinary change from last month's 3.7% rise to generate any interest. The rest of the week is also very light on key euro area releases with the highlight being Tuesday's ZEW survey, which will gives us our first indication of 2012s economic conditions.
US markets are closed today but the rest of the week will see a number of key releases that should hopefully continue to show the economy picking up steam. Meanwhile, domestically the only data of note today is the Rightmove house price index. However, here as well there are a number of important indicators later this week. This includes the CPI, which should show inflation on the way down and labour market and retail sales data, which will provide further insight on the strength of the economy late last year.
LTROs contribute to spread narrowing
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