Last week's politically-oriented themes look set to continue as the next seven days see the last opportunity for campaigning in France before the final round of elections for the Presidency this Sunday. Elsewhere, a front-runner in the Greek elections has failed to emerge, as support remains strong on the far-left and far-right as voters look for an alternative to the political mainstream, which many view as a disappointment for national politics. The week is also fairly data-heavy, and markets now look towards data releases as the key risk events for the week.
Across the Atlantic, Last week's US GDP figure surprised to the downside, coming in at 2.2%. Participants will, therefore, be looking for any commentary from Fed representatives regarding their interpretation of the numbers and any clarity from the central bank regarding Bernanke's comments that the Fed is still prepared to 'do more' in the markets. Further data this week in the form of non-farm payrolls will further fuel interpretation as to how the Fed's strategy is currently playing out. Expectations currently stand in a relatively wide range, with a bulk of the estimates in the 150 - 180K area.
In Europe, the final readings for manufacturing and services PMIs are due, with the figures showcasing the decline of the manufacturing sector in the core countries of Germany, France and Italy, with all three of their respective readings expected below the key 50.0 level. Further from Germany, their latest unemployment rate is due this week at a time where participants continue to look out for any signs of weakness from the country that many see as the only remaining responsible anchor for Brussels' campaign for austerity across the continent. Recent anti-austerity sentiment among politicians in the Mediterranean has gained attention in recent weeks, however it should be noted that there is a significant gap between political commentary and material policy adjustments, so a move away from austerity in Italy and Spain is not a tangible option on the table just yet. Participants should be aware that Tuesday sees Labour Day celebrated across Europe and market closure throughout the continent, so volumes across the still-open UK and US markets will likely be lighter.
The ECB will announce their latest interest rate action on Thursday. Unsurprisingly, all analysts are expecting an unchanged decision, with rates on hold at 1.00%. More attention may be paid to Chairman Draghi's subsequent press conference, in which the recent topic of a growth mandate for the central bank will likely arise. The Chairman is expected to repeat his belief that it is still too soon to tell the true effects of the LTROs on credit conditions and is expected to reiterate his current stance that any call for an exit of the ECB from the markets is premature. This hints towards the SMP, although currently dormant, still remaining a policy tool for the bank.
The UK fell into a technical recession last week, with a reading of -0.2% for Q1 this year. Analysts and trade bodies have already speculated that the reading is not a true reflection of the country's output, but this may do little to reassure participants that the UK economy is not retreating back into 1970's-style, fuel-inflation driven stagflation. Despite this, the GBP continues to see strength when compared with the EUR, going somewhat against policy-makers wishes who remain concerned about the outlook for UK competitiveness with a strong currency. The UK government may be distracted from any official commentary on the topic this week as the cabinet remains focused on the PR fallout from the ongoing Leveson inquiry, but any BoE commentary regarding the figures may garner attention.
In terms of earnings releases this week, European banks will publish their latest figures with the higher-cap names of Societe Generale, BNP Paribas, RBS, Lloyds and UBS all set for release. The French banking names may see particular focus as shareholders remain anxious on their future under a possible regime change from a centre-right government to Hollande's left-leaning socialist stance.