Week Ahead: currency tests and eurozone questions

Eurozone stability is being tested. There are the raw economic stats: On Thursday economic growth readings for the euro bloc were even weaker than expected, showing an overall 0.6% contraction in the final quarter of 2012.

There’s the currency rhetoric: a strengthening euro forced European Central bank president Mario Draghi to talk the single currency lower last week, with comments from other prominent European figures having less market impact.

And then there’s the growing political worries: the corruption scandal in Spain; elections in Italy in 10 days’ time, where polls show anti-austerity Silvio Berlusconi only narrowly losing out to Pier Luigi Bersani’s centre-left Democratic Party, threatening to raise market tensions in the meantime; and this Sunday’s Cypriot presidential elections which should finally pave the way for aid to be signed off for the struggling Mediterranean economy, again raising euro-angst in the process.

All of these issues will linger over the coming week, but there is at least an antidote: data for the start of 2013 should show the start of a recovery in the euro area. 

Flash February Euro area PMI data due on Thursday, as well as the German inflation, IFO (Friday) and ZEW (Tuesday) surveys, should show improvements in both the eurozone and its biggest economy in particular.

Then on Friday the European Commission provides its outlook for economy for the next two years.

One week, $1.2 trillion

However, concerns in the US could steal the market’s attention next week. Just two weeks remain before across-the-board spending cuts are automatically triggered should politicians fail to reach a deal on the so-called sequester. Democrats and Republicans, fond of last-minute deals, are taking a week off though, leaving only a short, antsy period of time to see off the $1.2 trillion of budget cuts.

US markets are closed on Monday for Presidents’ Day. But later in the week, important reports on the recovering US housing market are due, while the minutes of the Federal Reserve’s January rate-setting meeting will be closely scrutinised on Wednesday.

The ruminations of Britain’s central bankers are also due to be made public on the same day when Bank of England monetary policy meeting minutes are published. The Bank has so far refrained from re-booting its £375 billion quantitative easing programme, with governor Mervyn King this week pointing to signs for ‘optimism’.

Also in the UK – which remains on AAA credit rating watch – unemployment (Wednesday) and public finances (Thursday) data are due.

Japan, which has benefited from a falling yen, will remain in focus, as markets respond to the G20 statement on currency manipulation that was due on Friday afternoon. 

Stimulus-hungry Japanese prime minister Shinzo Abe is expected to make a decision on a new central bank governor, potentially ushering in policies that yield more yen weakness. Trade balance data is also due from Japan over the coming week.

In nearby China, markets will re-open after the Lunar Holiday.

FTSE Diary

European companies continue to report earnings over the coming week.

Of UK blue chips on Tuesday Intercontinental Hotels Group (IHG.L) delivers its final results.

On Wednesday mining giant BHP Billiton (BLT.L) will publish its half-year numbers and RSA Insurance (RSA.L) provides final results.

On Thursday final results are due from Premier Foods (PFD.L) and BAE Systems (BAES.L), while Kingfisher (KGF.L) is due to publish a trading statement