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WEEK IN FOCUS - 19/03/12-23/03/12

This week looks to be a relatively quieter one after a much anticipated successful Greek PSI, avoiding a disorderly default and clearing the path to a smooth redemption payment on Tuesday of EUR 14.4bln, which weeks ago caused much anxiety in financial markets across the globe. Although there is now some breathing space in Greece, the new bailout program does not ensure a fully financially stable nation, especially with political affairs likely to add to uncertainty as elections loom within the next 6-7 weeks. IMF's Thomsen demonstrated just this sentiment, saying over the weekend that Greece's latest bailout program will fail if the new government doesn't push through the reforms. Despite this, today will see the EFSF tapped for Greece's latest bailout, helping kick-start the new program with the EFSF planning to issue ultra-long bonds for the first time, selling bonds with maturities of between 20-30 years.

Looking ahead to notable events in the rest of Europe, the UK Chancellor Osborne presents his latest budget aimed at reviving a seemingly flagging British economy. Osborne has been particularly vocal of late reiterating his commitment to austerity especially in the light of recent actions by the ratings agencies Moody's and Fitch, placing the UK on outlook negative, however still retaining the top credit rating. This is likely to strengthen the Chancellor's argument against any unfunded giveaways in the budget but there are still a series of measures that could arise, however analysts have speculated that they will have little macroeconomic weight or pull, with some expecting the budget to be a more political rather than economic affair. Possible measures that could be announced include issuing a new "super-long" gilt with 100-years to maturity or longer, raising the ceiling on the lowest tax band as well as cuts to the controversial top GBP 0.50 tax rate. Some analysts have become more and more positive towards the UK in the past few months, with UBS revising their GDP growth forecast for the UK from -0.1% in 2012 to +0.6% and other analysts pointing out the relative strength in UK PMI Manufacturing over the past three months, outperforming the Eurozone.

Mid-week will be fairly UK-heavy, with the publication of the latest MPC minutes occurring on the same day as the budget announcement. In the last MPC meeting, the board came to a decision to keep their base rate and the APF unchanged at 0.5% and GBP 325bln respectively, and the minutes are unlikely to show much deliberation over these decisions with the current GBP 50bln course yet to be completed. But there are notable doves (Miles and Posen) who may have argued for further easing, such as the February minutes which showed a more divided committee. Members may point towards further inflation risks to the economy with fluctuations in energy prices being one of the main culprits. More light shall be shed on the UK's inflation risk on Tuesday as CPI figures are set to be released, with consensus expectations falling well above the central bank's 2.0% target.

Other data to be aware of this week is PMI numbers for both services and manufacturing coming from France, Germany and the Eurozone. These figures are expected to show slight increases; however the figures for the Eurozone are currently expected to stay below the 50.0 level, signalling a contraction for March. Over the pond in the US, economic data is light and will be concentrated around the housing market. The pick-up in pace of new home construction in the US is likely to be indicated in Tuesdays housing starts for February, and with the number of new homes available for sale at a record low, this is likely to be reflected in Fridays new home sales reading.