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WEEK IN FOCUS - 13/02/12-17/02/12

As of the early hours of Monday morning, Greek party leaders have approved a package of austerity measures for the Greek economy that should fulfil both Eurogroup and Troika requirements. It should be noted that these documents will still need to be approved by the Eurogroup on Wednesday. The actions of last week will remain fresh in Greece's mind where a proposed deal was swiftly dismissed by European Finance Ministers as unsatisfactory. Most notably, the deal may come under scrutiny from German politicians, with the German Finance Minister Schaeuble saying that too many vows have been broken by Greece and words are not enough, leaving the door open to speculation that a Greek bailout deal could be rejected again. The swelling impatience of the Eurogroup is clear, with more and more demands being laid upon Greek politicians and the deal moving further away from distinct, quantifiable targets. Should the proposed deal be rejected, it is difficult to forecast what further corrections the Greeks could make to appease the Troika, and the question may change from 'when' to 'if' Greece meets austerity targets.

As well as this, Friday sees the final deadline for the Greek bond-swap deal. Sceptics may be wary of this deadline as this is one of many deadlines that Greece have faced, however, it is thought that with the combination of the austerity measures ultimatum on Sunday, this could be the last chance for Greece to emerge from the storm with some economic dignity intact. The vote in Greece brought about a degree of civil unrest, but this behaviour is not limited to just Greece with the Portuguese population expressing their distaste with proposed austerity measures through comprehensive protest (the largest in 30 years). This comes days ahead of a Troika conference in Lisbon concerning the implementation of the measures, and a speculative bailout for the country, although this has been dismissed in recent weeks by Portuguese officials.

The main risk events from the US this week include US President Obama's presentation of the 2013 budget on Monday, which is expected to show plans to spur growth in labour markets and increase the tax burden on the rich, although market reaction to this is likely to be muted as Obama's intentions have been clear since his state of the union address two weeks ago. Other than this, markets can expect the publication of the FOMC minutes. Fed Chairman Bernanke has been particularly vocal in the past week so there is little expectation of any new information to the markets. The minutes are expected to comment on the gradual US recovery, portraying a dovish strategy for the coming months. In terms of data releases from the US this week, analysts are expecting modest improvements in January retail sales data, with an expectation of +0.5% for the monthly reading. Markets could witness a steep recovery in retail sales over the next few months as recent non-farm payroll data and renewed take up of credit will help fuel consumption, so many analysts are seeing the January sales figures as the beginning of a pattern of stronger consumption data.

Although Greece remains a heavy weight dragging on almost every market in recent times, there are some significant economic releases due in the coming days that could be further amplified by Greek volatility. We are expecting the BoE's quarterly inflation report on Wednesday. It is likely it will not unveil any unexpected information due to the close proximity to last weeks' rate decision and press release. Analysts are expecting the report to forecast a fall in inflation that will continue until the end of year (neatly justifying the third round of quantitative easing) and remaining around the BoE target of 2.0%. The report is also likely to say that the UK economy has not deteriorated further since November, and may even show modest improvements, steadying the central bank up until the completion of the new QE plan in May. The inflation report will tie in with CPI and RPI data set for release on Tuesday, with analysts expecting a deflationary figure for the month of January, pulling Y/Y inflation downwards to around 3.6%. This pattern is forecast to repeat itself for the rest of year, hitting the 2.0% target by the year end.