Global markets week ahead: growth-led rally fights Greek headwind

Greece will once again be the single biggest risk factor overshadowing financial markets in the coming week, but investors are also on the alert for signs of recovery in Europe to support the strong rally in riskier assets seen this year.
The big numbers to watch will be the purchasing managers' surveys for Germany and euro zone and the German Ifo business climate index, while US data on the housing market is seen as key to confirming the recovery in that giant economy.
But a cloud of uncertainty hangs over the market as the battle to secure a deal to provide Greece with a second bailout and avoid a disorderly sovereign debt default when bond repayments come due on March 20 rages on.
"The markets will still be on tenterhooks until a final agreement is in place, not just the agreement from national governments to provide additional funds, but also finalising the private sector involvement as well," said Lee Hardman currency economist at Bank of Tokyo-Mitsubishi UFJ.
Hopes are high that a meeting of euro zone finance ministers on February 20 will seal the second bailout, seen as worth at least 130 billion euros ($170 billion), and that this will pave the way for parallel restructuring of privately held Greek debt.
However, markets fear that the decision maybe postponed again, possibly until a European Union council meeting on March 2, and that delays could occur because national parliaments have to approve the bailout. The German Bundestag is set to meet to discuss the deal on February 27.
There are also questions over the participation of private sector bond holders in their deal, and over the implementation by the Greek government of the agreed austerity measures as social unrest grows.
"Our base case is that this second bailout package will eventually be agreed but it will take much longer than the markets would like, and there will be even more strings attached," said economist Nicholas Spiro of London-based Spiro Sovereign Strategy.
While Greece dominates the headlines it is the economic data, especially for the euro zone, which will be inspected closely for confirmation that a recovery inspired by easier monetary policy from the world's major central banks will continue to underpin demand for equities and commodities. A US stock market rally has pushed the Dow Jones index to within sight of the 13,000 level, near to its highest levels since May 2008 before the depths of the financial crisis struck. The MSCI All country World Index, which covers 9,000 stocks world-wide, has gained nearly 10 percent in the year to date.
"The rally in global equities over the past two months is, in our view, almost entirely due to the European Central Bank's long-term refinancing operation (LTRO) on December 22," said Garry Evans, global head of equity strategy at HSBC.
"By demonstrating for the first time its commitment to quantitative easing (like the US Federal Reserve and the Bank of England before it), the ECB has reduced tail-risk in Europe," Evans said.
The ECB lent banks almost half a trillion euros of cheap 3-year funds in December, helping to ward off a credit crunch as lenders fretted about the effects of a potential Greek default. Another such offering is due on February 29. Oil has also had a great run with Brent crude futures nudging $120 dollars a barrel, enjoying a fourth consecutive weekly rise over the past week - a bull run not seen since March last year.
But investors still want to see confirmation that the extra money from the central banks is making its way through the real economy. The 17-nation euro zone economy actually shrank in the final quarter of 2011, according to recent output data, due to the impact of the sovereign debt crisis and many fear the current quarter will see further contraction, signalling a recession.
"The euro zone economy is slowing down faster and more, there is truly an acceleration in recession here," Didier Saint-Georges, a member of the investment committee at French asset manager Carmignac Gestion said.
"The US economy is doing okay, in emerging markets fears of hard landing are excessive," he said. Some analysts did find signs of hope in the latest GDP data pointing out that Germany's economy, the biggest in the euro zone, contracted only slightly and both it and France, which eked out anaemic growth, performed better than forecast.
Although the effect of extremely cold weather which enveloped much of Europe in early February could stall any recovery in the first quarter of 2012.
Eyes are now on the February Purchasing Manager's indexes for the euro zone, Germany and France, due on to February 22, which are expected to signal that the turnaround is underway. The German business climate index on February 23 should also show the growth is likely to be led by region's biggest economy. In the US new and existing home sales are the only data of major interest. The housing market has lagged the recovery in other areas of the economy, like the jobs and manufacturing. US markets are shut on Monday due to a public holiday.