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WEEK IN FOCUS - 09/07/12 - 13/07/12

Across the space of just two weeks, participants have witnessed a significant shift in the stances of both central bankers and governing powers from East to West. However, markets have not found solace in the proposed actions, seeing serious downside as the central bank actions fall short of expectations, with the sentiment being compounded by yet another disappointing Non-farm payrolls report.

Looking ahead in the week, data from China will be a focal point for a number of the riskier assets, as the Chinese government are set to release their Q2 growth figures. With Chinese PMIs coming in particularly soft in recent months, many investors now regard the Eastern Dragon's economy with marked apprehension. This has prompted a number of institutions to speculate whether last week's move by the PBOC was in fact pre-emptive, as the bank's Board attempt to offset any perceived weakness in the numbers. With a number of both state- and central bank-run publications in the country opining for additional cuts to banks' reserve requirements, markets will be clinging on to any further pieces along the same vein from the Chinese press. With the PBOC cutting rates twice in the space of a month, this week's release of money supply figures will also be closely watched for the nature of the transmission of easing. This has been factored into expectations for June, reflected in the expectations of an uptick in liquidity since the cut in early June.

Bond auctions this week are towards the lighter side in terms of quantity, but Friday's Italian issuance of medium- long BTPs will, again, be used as a fresh litmus test on sentiment towards the Mediterranean, as markets continue to look for any signs of faltering in the stance of the hawkish North-European states on the topic of buying in the secondary bond markets. This week's Eurogroup meeting should see further comments on the issue, but few are expecting a softening in the stance of Finland, the Netherlands and Germany. A more likely outcome will be another dose of reality for the flagging periphery, with even the Greek finance minister commenting that he expects a hard-time this week as his country falls behind on their austerity targets.

For US participants, the key event of the week is likely to be the release of the FOMC's minutes wherein the board selected to extend their Operation Twist program. Upon the publication, markets will be keenly looking out for any signals from the Fed on their long-awaited, but cruelly-denied QE3, which continues to be heavily priced in. As such, any indication of a delay in further asset purchases or a lowering in the likelihood of assistance from the Fed will likely prompt strong risk-off sentiment, compounding the effects observed time and again when the Fed has refused to deliver.

The ongoing LIBOR scandal is likely to intensify this week, as the BoE's deputy governor Tucker is set to take the stand today in front of the Treasury Select Committee, and will likely receive a grilling from the panel on his relationship and connections to Barclays' decision to depress rates. Although much of the damage has been done on a number of UK banks' share prices, the scandal remains prevalent as source comments minutes before Friday's close last week indicated that a number of institutions are still yet to be investigated, naming Deutsche Bank specifically.

Elsewhere on the equity front, US earnings season is set to kick-off once again with Alcoa due to report today, but the focus will be on Friday's releases, which sees JP Morgan report for the first time since their 'London Whale' difficulties, as well as tech titan Google.