What a week that was. In just seven days the UK has been stripped of its credit rating, an inconclusive Italian election re-ignited the euro one crisis, and the US has – barring a last-minute deal – failed to prevent steep budget cuts, triggering the ‘sequester’.

Meanwhile there have been further signs of a shift in central bank policy towards an increasing tolerance of inflation, sacrificed in the name of growth and raising employment.


That includes Bank of England policymakers, who in the coming week will vote on whether to extend their market stimulus programme.



Growing momentum to lift QE to £400 billion


Weak manufacturing and mortgage approvals data on Friday could add to growing support for more quantitative easing after Bank of England governor Mervyn King last month unexpectedly added his vote to the minority calling for more aid.

Still, other monetary committee policy members are less enthusiastic about more QE and data reports next week, including the PMI report on the dominant services sector on Tuesday, could determine whether the panel votes for another £25 billion of bond buys on Thursday.



Euro strength and euro one weakness.


In Frankfurt, the European Central Bank is thought unlikely to announce any policy changes when it holds its own meeting on the same day. Investors are however expecting comments from ECB president Mario Draghi on the impact of a strong euro on the Bank’s growth and inflation forecasts when he holds his press conference on Thursday.

Those economists most spooked by Italy’s uncertain political future though, say that the ECB’s current policy stance – particularly the backstop bond-buying programme – won’t be enough if the euro one crisis truly returns.


Much depends on Italy’s efforts to form the next government. After selling off sharply when the Italian elections results became clear, markets have remained calm amid the continuing political deadlock. So far, Pier Luigi Bersani, leader of the centre-left party that won a majority in the lower house but not the senate, has ruled out forming a grand coalition with Silvio Berlusconi.


Another, smaller euro one nation will also come under market scrutiny. Bailout plans for Cyprus are on the agenda at the next ‘Eurogroup’ meeting of finance ministers on Monday in Brussels. The election of Nicos Anastasiades last weekend should ease the way for complex negotiations for a bailout.


Elsewhere in Europe key economic reports due in the coming week include euro area GDP (Wednesday) and German industrial production (Friday).



Jobs and spending cuts in US.


The US and China are not short on major political and economic events in the coming week, either.

In the US, where there is still uncertainty as to just what the real impact of sequestration will be, market tension could run high.
The biggest monthly report on the global financial calendar is due on Friday, when the US non-farm payrolls jobs numbers are published. These will be closely watched for clues as to when the US Federal Reserve may start winding down its own stimulus programme. Among other major US economic reports, non-manufacturing ISM data is also due on Tuesday. Chinese targets, Japanese change of guard.


In China, the Annual National People’s Congress session starts in Beijing on Tuesday, where annual economic targets will be set – and pounced on by investors. Markets will also be watching data on industrial production, inflation, retail sales, trade and investment on Friday for signs as to whether China’s economic recovery is on track.
In Japan, the central bank holds its last meeting under governor Shirakawa. No more stimulus action is expected until prime minister Shin o Abe’s nominee, Haruhiko Kuroda – who needs approval by parliament – steps in as the next Bank of Japan governor. FTSE 100 Diary


Insurance companies and banks feature heavily among UK blue chips due to publish financial numbers over the coming week.
On Monday HSBC (HSBA.L) continues British bank reporting season, delivering final 2012 results. Intertek (ITRK.L) also publishes full 2012 numbers.


On Tuesday, Standard Chartered (STAN.L) and Meggitt (MGGT.L) follow with 2012 reports.


Final results for 2012 are due from Melrose (MRON.L) and Legal & General (LGEN.L) in Wednesday.


Then on Thursday, bluechips Schroders (SDR.L), Aggreko (AGGK.L), Standard Life (SL.L), Aviva (AV.L) and IMI (IMI.L) are all due to update investors on their efforts last year.