15.03.13 Friday Morning

Global markets have been trading on the soft side throughout the week as investors seek fresh catalysts to offer a new direction. Traders have tentatively monitored markets, refraining to build positions given that indices are at an elevated level.

With U.S. stock futures ticking even higher in yesterday’s session, The Standard and Poor’s 500-stock index is trading within a couple points of its all-time high, whilst the Dow Jones has risen for 11 consecutive sessions capping its longest streak of gains since November 1996.

Whilst many analysts expected an extremely strong start on Monday owing to last week’s sensational U.S. job data, figures out of China showing a slowdown in industrial production and retail sales overshadowed any positive sentiment.

Meanwhile over in Europe, France reported on a disappointing slump in industrial production but the focus remained on Italy. Fitch cut Italy’s credit rating by one-notch to triple-B plus, pressuring Italian bond yields and weighing on the euro.

Italy’s 4Q GDP was also dismal with the economy contracting 0.9% - one of the deepest recessions in Europe. The data adds to the malaise in Italy at the moment with markets increasingly uncertain over the fact that the country is still ungovernable and could be for some time being, deepening the recession further in the quarters ahead.

Italian banks are bearing the brunt of the Fitch downgrade and poor GDP data – the FTSE MIB is also registering some of the biggest losses in the broader European market. The Italian parliament has convened today for the first time since last month's deadlocked election with no sign of a deal to end the stalemate and yield a new government able to tackle reforms.

Focusing on Britain, manufacturing and industrial output figures went from bad to worse, sending sterling to a two and a half year low. But the slide in the currency did little to rock gilts and the FTSE100 which remains above the 6400 level.

The poor data from the UK will only raise the volumes for more QE by the BOE in the coming months so stock traders are undeterred by the bad patch of data from the UK of late.

Meanwhile, Bank of Finland Governor Erkki Liikanen said given that inflationary expectations remain anchored, the ECB's policy stance will remain accommodative. That helped soothe concerns after data showed that the number of people who have jobs in the euro zone during the fourth quarter fell to the lowest level in nearly seven years.

With the outcome of the Italian election talks being cited as the catalyst that could influence sentiment going into next week, investors will keep a close eye on developments. Forming a broader coalition appears to be the most market-friendly scenario but even then, the viability of such a coalition is questionable and possess many risks such as if all parties can agree on policies.

Next Week’s Blue Chip Earnings:

• Tuesday - J Sainsbury PLC Q4 2012-2013 Trading Statement
• Wednesday - Preliminary 2012 Eurasian Natural Resources Corp PLC Earnings Release
• Thursday - Preliminary 2012 Next PLC Earnings Release
• Thursday - United Utilities Pre-close Trading Update

Next Week’s Significant Economic Data:

• Tuesday – GB CPI y/y
• Tuesday – GB PPI Input m/m
• Tuesday - German ZEW Economic Sentiment
• Tuesday – BOE Inflation letter
• Tuesday – US Building permits
• Wednesday – GB Claimant Count Change
• Wednesday – GB MPC Meeting Minutes
• Wednesday – GB Annual Budget Release
• Wednesday – US FOMC Economic Projections
• Wednesday – US FOMC Statement
• Wednesday – US FOMC Press Conference
• Thursday – CHY HSBC Flash Manufacturing PMI
• Thursday - German Flash Manufacturing PMI
• Thursday – GB Retail Sales
• Thursday – US Unemployment Claims
• Thursday – US Philly Fed Manufacturing Index
• Friday – German Ifo Business Climate