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WEEK IN FOCUS - 23/01/12-27/01/12

The major question preying on investors' minds this week is, in simple terms, could this be Greece on the brink of a deal. Is Greece heading for a hard-default a la Argentina or will they make a deal for voluntary PSI, avoiding a CDS trigger, and will they make their redemption payment of EUR 14bln on March 20th. On Friday the Greeks failed to reach a conclusion to their PSI+ talks, despite utterance from sources close to the situation claiming they were close to a deal. IIF's Dallara and his adviser Jean Lemierre both left on Saturday, so it now looks like there will be no deal ahead of the EcoFin meeting today, which as a reminder was the deadline set by Greek finance minister Venizelos. Following various press reports it also seems likely the new PSI+ deal will decide upon bonds that have a maturity of 30 years, with a coupon in the region of 3.5-5.0%, although a lack of clarity on the net present value (NYSE:NPV) target remains one of the main sticking points, posing a barrier to quick negotiation. Another point of note is the talk surrounding the use of collective action clauses (CACs), which are currently not written into Greek law, the reason the country is considering introducing them retroactively. So in summary the three main points to look out for, following any agreement, will be the use of CACs, the final participation rate and the design of the second IMF programme; but that is, of course, if any deal is seen to be done.

Heading over the Atlantic and into the US, focus will surround the FOMC rate decision, with the quarterly press conference from the Fed front-man Bernanke. This will be the first of many from which the Fed now intend to release forecasts for the federal funds rate, GDP, employment and inflation projections for the period 2012 until 2016. These forecasts will also include detail of projections per Fed member, although they will retain their anonymity. This new method of communication out of the Fed brings with it uncertainty of how to react, and how to decipher the messages which could mean a limited reaction in the markets as market participants digest the data. In recent times we have seen stronger employment numbers, and better unemployment out of the US, although this has been driven by lower participation rather than stronger hiring. With this performance it looks unlikely that the Fed will announce any form of QE this week, which is expected within the not too distant future, but forecast by many for nearer April than January. However the Bernanke press conference, especially the Q&A, will draw attention as the European situation sits on the verge of recession, and as the US economy teeters on the brink of a slow-down.

Despite the situation in Europe demanding the spotlight, and with Bernanke also drawing attention, there will also be some key data from both sides of the pond. The UK GDP reading due on Wednesday is expected to show a negative reading of -0.1%, a worrisome sign for one of the few remaining triple-A rated nations within the EU, with this expected rate attributed to falls in services and manufacturing in October. Of the same matter, the US GDP reading is due on Thursday, following the release of the Fed forecasts the prior day. The data release is expected to show a much stronger reading than expected out of the UK, with a median forecast of 3.0% for the year, which would mean the strongest quarter for 2011. As a further run-down of tier 1 data due, the final University of Michigan confidence reading for Jan is expected shortly after the GDP reading, although most analysts surveyed expect no revision, but a solid number of 74.0.

Finally earning season continues this week, with some large volume and big-guns reporting, namely Apple who are due after-market on Tuesday. Apple will be reporting for its fiscal Q1, for which analysts are predicting a record-setting quarter for the company after a somewhat disappointing Q4. During Apple's Q1 co-founder Steve Jobs passed away and the technology company started selling the latest version of its iPhone, so Tuesday should be an interesting account. Along with Apple many of the larger pharmaceutical stocks will deliver their earnings reports this week, including Johnson & Johnson, Abbot Labs, Bristol-Myers and Procter and Gamble. This year sees the largest number of patent expires in the industry, and consequently a growth in generic drugs, so this will be the final readings from these companies before patents seemingly fall off a cliff.

Sources: FT-(Link 1 Link 2)/BNP Paribas/HSBC/RTRS/ekathermini