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WEEK IN FOCUS - 02/07/12-06/07/12

Going into the second half of the year, the outlook for the global economy has shifted significantly over the past six months, with austerity's Old Guard becoming outnumbered by the more left-leaning leaders in their calls for growth-boosting measures. Despite the changes in attitudes that have taken place, the issues are unchanged, with the European debt crisis remaining acute, the US jobs market continuing to be the focus for Fed policy, and fears over a hard landing in the world's second largest economy worrying investors.

Last week's EU summit outcome may be read by many as a clear signal that Europe is finally starting to take a proactive stance on the deep-seated economic cracks that lie in the continental market. As such, pressures on the Mediterranean look to have eased with markets seeing a significant lift across the asset classes on Friday, so participants will be looking for the sentiment to have carried across the weekend. However, a number of analysts have highlighted that the most recent activity from the EU powers may address the short-term issues, but there is still a lack of a longer-term fix, and any analysis on the long-run effects will be closely watched. The shift in attitudes towards Spain particularly should be evident this week as the country's treasury looks to sell bonds on Thursday. Commentary from European powers is bound to be plentiful over the next five days, as Italian PM Monti and German Chancellor Merkel co-host a meeting of leaders on Wednesday.

Thursday sees both the ECB and BoE's rate decision announcements, and analysts are firmly expecting solid action from both central banks. As the inflation profile eases across Europe, Draghi and his board members may see the opportunity to slash their base rate this week which, in tandem with the EU summit actions last week, could provide buoyancy. As for the BoE, the MPC are largely expected to boost their asset purchases this week, running alongside the Treasury's latest ECTR announcements, potentially soothing the flagging growth in the country with another dose of liquidity treatment. As another wave of QE firmly anticipated, the focus of the release will be the maturity buckets in which the MPC direct their purchases, so the UK's yield-curve will be eyed carefully.

The BoE will not only be watched for their rate decision this week, but also for any commentary on the ongoing Libor-fixing scandal, with the latest reports even suggesting that the Old Lady of Threadneedle Street was implicit in the process of actions that prompted UK banks to lower their Libor submissions. The outcry from the press and public has already shaken many banks, with Barclay's Chairman now set to resign, as well as a number of high profile bankers from RBS losing their positions over the past few days.

For US participants, the week is to be split by the Independence Day holiday on Wednesday, with the flashpoint likely to be Friday's non-farm jobs report; a bulk of analysts are currently expecting the US to have added 75-90,000 jobs this month. The release will give participants further clues for the Federal Reserve's future actions; however Fed speakers have been careful to point out the lack of direct transmission between monetary policy and the US labour market of late.

The Chinese slowdown may come under more focus this week, as China posts the weakest manufacturing growth of the year so far, placing more onus on the Chinese government to provide cushioning for their declining rate of growth. As such, speculation of action from the PBOC or Premier Jintao could be theme running through the next five days, especially as the PBOC's governor has reiterated that the bank will fine-tune their policies in a 'timely and appropriate manner'.

In other global news, the steady decline in oil prices across the past few weeks and months continues to aggravate a number of OPEC members, with the Iranian representative calling for an emergency meeting of the cartel, so energy traders will be watching for any signs of a cut in the group's output ceiling or even a re-introduction of a controlled price target for oil.