The big freeze this season has clouded economic figures across Western Europe and the US.
The big freeze this season has clouded economic figures across Western Europe and the US, with the dollar gaining ground and Greek debt still putting euro zone growth on ice.
As an unusually cold winter distorts key data, investors face snow-blindness in the coming week as they try to assess whether improving economic fortunes can get markets out of a rough patch.
The harsh winter on the US east coast and parts of western Europe is already clouding the economic picture and is almost certain to put a question mark over the US's February jobs report, which was due to be released late last week.
This, in turn, is likely to complicate the job of interpreting how and when central banks are going to drain the huge liquidity they have pumped into the world's economy - and, by extension, markets - to get them out of financial crisis.
The European Central Bank, Bank of England and Reserve Bank of Australia have all met to discuss policy.
Reuters' polls suggest a 25 basis point hike from the RBA, but for the most part economic weakness and/or uncertainty have been putting back expectations of any major monetary tightening in leading developed economies.
Jan Lambregts, global head of financial markets research at Rabobank, for example, said that fiscal troubles in the euro zone's peripheral economies mean that the ECB will not raise its main rate until toward the end of the year. Rabobank has also cut its forecast for ECB tightening this year to 50 basis points from 100 basis points.
All of which suggests that interest rates are likely to remain low for some time, making returns from equities all the more attractive.
Reuters surveys of leading fund management firms in February pointed to investors being cautious but showing no signs of pulling back significantly from the stances that created last year's risk rally. Indeed, they lifted exposure to equities, a move that gels with MSCI's all-country world stock index heading for a small monthly gain after losses in January."There is a global recovery. The questions surrounding that are its strength and likely duration. But the recovery angle has been helpful for equities and credit," said Matthew Merritt, multi-asset strategist at Insight Investment. Investor sentiment is not uniform, however.
State Street's latest investor confidence index was down overall, but its North American regional index rose. At the same time, US investors were among the most bullish about stocks in the Reuters asset allocation poll. Much of this may be down to the relatively steady signs of improvement in the US economy.
It is also reflected in the strengthening of the dollar, which has seen some of last year's inverse correlation with risk appetite break down. The dollar has gained more than three percent against a basket of major currencies this year, about half that in February. Heading into March, Barclays Capital said that its month-end fixing model suggested that rebalancing by portfolio managers was likely to result in dollar buy signals.
The shift in sentiment toward the dollar, however, is not just about positive sentiment toward the US economy. It also reflects investors walking away from the euro zone as it struggles to contain the debt crisis in Greece and other peripheral economies. The euro has fallen almost ten percent against the dollar since December and around five percent this year. The Reuters asset polls showed cuts in bond allocations to the euro zone in favour of UK and emerging market paper.
There is little doubt that the issue of Greece debt and the possible contagion to Portugal, Spain, Italy and possibly other parts of the euro zone will continue to haunt investors.
For one thing, the debt market is on edge for a possible issue of up to €8bn of Greek new ten-year debt. With ratings outlooks of possible downgrades and serious questions about whether Greece can reach its deficit-cutting ambitions this year, the market expects a concession of 50 basis points being built into the syndicated sale.
Greece needs the money. It has bonds worth about €20bn maturing in April and May.
On the political side, Greek Prime Minister George Papandreou was due to visit German Chancellor Angela Merkel in Berlin late last week, the outcome of which is likely to get far more attention from financial markets than such EU chats normally do.
"If there are still people who think that economics is boring, then this euro zone crisis will change their minds," William De Vijlder, chief investment officer of Fortis Investments, said in a blog post.