The Day Ahead: All About Europe and Next Week

Thursday's robust batch of economic data brings the calendar of domestic reports to a close for the week.  This leaves Friday at the whim of overnight events in Europe where there is a similarly robust batch of economic data including German GDP and IFO Business Climate as well as Italy's reads on inflation Consumer Confidence and Retail Sales.  Markets will hear from two ECB speakers following Thursday's freshly updated client notes from JPMorgan on the expectation for a rate cut at the next ECB Announcement, and all of that will happen before New York gets in for the day.

From then on, the calendar is stone silent, leaving markets to "trade it out."  This could be enlightening, underwhelming , or a mere headline chase.  We could see a fair amount of attention paid to Italy  and the risk that the elections on Sunday and Monday either fail to form a government or simply leave the wrong guy in power (Incidentally, I've asked several people without any knowledge of Italian politics, ranging in age from 6-64 which two people they'd want to run their country if they had to pick two of the six folks pictured HERE and they all chose Bersani and Monti).  Risk markets may breathe some sort of sigh of relief if Bunga Bunga goes bye bye however, so in this case, if you'd like a disorderly flight-to-safety that sees some marginal spillover to higher MBS prices by the time most of the panic is soaked up by Bunds and Treasuries, then Berlusconi may be your guy.  More on this mess from Reuters HERE.

If Italy doesn't manage to ruffle markets' feathers tomorrow, then we're in to the following week which has several metric tons of economic data (seriously, there's a lot), including the important 2-day Bernanke Congressional testimony, a Treasury Auction cycle, additional Fed speakers, GDP, Consumer Confidence, ISM Manufacturing, and 'Month-End.'  With all that in mind, it's something of a relief that  March 1st is NOT an NFP day, though markets are likely to be thinking about it as well as the ECB Rate Decision released 24.75 hours earlier.  Lots to consider for market participants as bond markets consider which trends will lead away from the impending crossroads:

(There are many other trends and techs to consider, of course, but these are the few that consistently tell an interesting story for many weeks now.  These are the personalities in play...  Green is the sober cynic with yellow the sober optimist.  Red is tricky, enigmatic, and more aggressive, but definitely not as well-established or as predictable as yellow.  Teal is the poster child for the unified cries of "C'mon!!!  Enough already!!!" from fans of low rates--crazy aggressive, but shockingly real and as-yet undefeated).