The onslaught of economic data releases, together with government debt auctions from peripheral Eurozone nations is the clearest indication yet that markets are due for a volatile week. In addition to that market participants will also have to digest the release of the minutes from the latest FOMC meeting, the latest Quarterly Inflation Report from the BoE and if that wasn’t enough the Obama administration is to reveal details of the Congressional Budget for 2012.
Still, it is more likely than not that at least for now, the attention will remain on the Eurozone and in particular market participants will continue to speculate whether Portugal will be forced into admitting defeat and in turn enact the bailout mechanism. The recent rise in yields of Portuguese debt even prompted the ECB to restart its bond buying program via the Securities Market Program (NYSE:SMP), while at the same time the outlook for the EUR currency deteriorated significantly and led markets to question the unity of the bloc. In addition to that it remains unclear whether the Irish opposition party which is expected to win the next general election later this month will put forward a proposal which will include various haircuts on senior bank bond holders. By doing so policy makers risk shutting Irish banks out of the capital markets, which in turn means that banks will again become dependent on the ECB money and potentially prompt the ECB to abandon plans to return to competitive styled auctions. In turn this will further undermine the stability of the Eurozone and lead to further bank and state (Spain) bailouts. Apart from fretting over the various government supply on tap, market participants will also look forward to the release of the Eurozone Industrial Product report, German/EU ZEW Survey and also the preliminary Q4 GDP reading from Germany.
Elsewhere, the release of Chinese CPI is expected to underpin the view that the PBOC will have to carry out further monetary policy tightening or risk a further rise in inflation which is expected to spike above 5%. Much of the rise will again be attributed to higher food and energy prices, while inflationary pressures stemming from the housing market are expected to subside this month. Nevertheless, unless CPI remains below 5%, market participants will end up speculating over further rate hikes by the PBOC which will inevitably weigh on the commodity markets and in turn support the USD index which is attempting to break above its 100DMA located just below the 79.00 level.
There is also a slew of US related economic data in form of Empire Manufacturing, Retail Sales, Philadelphia Fed, Housing Data and also the release of the latest CPI figures which are crucial in assessing potential for further QE by the Fed.