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WEEK IN FOCUS - 12/03/12-16/03/12

This week the market will be attempting to put the Greek saga behind them as last Friday saw the completion of the nerve-racking PSI deal. However, limiting the extent to which participants can shift their focus away from the Hellenic Republic, the International Swaps and Derivatives Association declared that a restructuring credit event had occurred in the country. We have also seen some commentary over the weekend from various sources, suggesting that the new funding Greece is receiving will likely only be a stop-gap, with the country possibly needing a third bailout in the future after it works its way through the second wave of funds. To note, the EU finance ministers are meeting yet again this week to discuss the state of the second bailout, with the discussions likely to revolve around the outcome of the Greek deal and what the implications are for the governments, the markets and the people of Europe. Despite the repeated assurances that the Greek debacle was a one-off, market participants will remain cautious concerning the other flagging European peripheries, with Spain, Portugal and Italy under the spotlight in the coming weeks as policy makers look for any signs of stress signalling a troubling future in the Mediterranean.

This Tuesday sees the release of the FOMC rate decision for March, with most analysts expecting no change, with rates staying on hold at 0.25%. Commentary from the Fed of late has suggested that rates for the US will stay at the current level for as long as the economy practically needs, which may be until the mid-point of next year. Last week saw the release of an article from the Wall Street Journal, showing that the Federal Reserve is considering 'sterilized' bond buying, consisting of a reprise of operation twist and a further wave of quantitative easing. This slightly altered plan should allay fears of future inflation for market participants by tying up the printed money by borrowing it back for short periods at a low rate of interest and investors will be eyeing any commentary regarding these plans with great detail in the coming weeks.

Looking at the fixed income markets, the UK Gilt market is seen as supported throughout March with relatively light supply as well as a strong stance given by the UK Chancellor Osborne, committing the UK to fiscal credibility and his austerity plan. These factors may place upwards pressure on gilt yields this week and beyond. Analysts have also been casting their eye over the relatively strong GBP in the FX markets, as recent UK data has overall been outperforming expectations; however it should be noted that as the year passes and we see further quantitative easing from the Bank of England, we may see a cap on the GBP's relative robustness.

There is little in the way of key economic data this week, so the main risk events will be any European commentary from the Eurogroup, any subtle signals from the US on a third wave of quantitative easing and, yet again, any signs of militancy from the Middle-East, as energy markets remain fixated on geopolitical tensions between Iran, Israel and the West.