Big Week ahead

Lots on the agenda this week; the main focus will be the G20 summit, ECB rate decision and US non farm payroll data. The G20 summit will take place in London amid difficult economic times and a call for a unified response to the economic downturn. Many argue that the summit will be a huge disappointment and anti-climax with rhetoric not mobilizing into action; on the other hand it is an opportunity to regulate global finance and show a unified response to the economic downturn.

On Thursday we see the ECB rate policy meeting with the expectation of a 50 basis point cut; again the main focus will be on Trichet’s comments after the decision, the key aspect being whether he will opt for unconventional measures and further easing… Vice-President Papademos commented last week that the central bank may decide to buy corporate bonds. If any escalation in this regard then look for a sharp sell off in the euro.

Looking at the fx markets we have seen the pound weaken against the USD back under 1.42 as Weaker GDP and a higher current account deficit than forecast put the pound under pressure. The US dollar has also gained significantly against the euro as it recovers its poise from last weeks sharp sell off- one driver for a stronger dollar is the expectation that the USD will remain as the worlds main reserve currency for some time to come. On Friday, look for key data in relation to US non-farm payrolls which may show a fall 700,000 in February- this would be the largest drop since the 834,000 decline in October 1949.