Global investors will have more than enough headline risk to navigate this week as economic data and high-profile testimonies from two of the world's top policy makers dominate the news flow in one of the final active weeks for world markets ahead of the London Olympic Games and the traditional August slowdown.
Consumer price reports from Europe, the UK, the United States and India will help lay the groundwork for market assumptions of monetary easing in the second half of the year as global growth - particularly in China and the United States - shows real signs of slowing. Eurozone inflation figures were published Monday morning while CPI figures for the US and the UK will follow on Tuesday.
Eurostat confirmed an earlier estimate that showed harmonized consumer prices in the Eurozone fell 0.1 percent in June from the previous month, taking the annual rate of acceleration to 2.4 percent.
India published inflation data for June that showed a marked slowdown in the cost of living in one of the world's fastest-growing economies. The 7.25 percent annual advance in its wholesale price index was the second-lowest reading since 2009 and may give the Reserve Bank of India further scope to lower its key lending rate in an effort to jump-start growth. The data supports the view published last week by the Asian Development Bank, which lowered inflation forecasts around the region to 4.4 percent from an estimated 4.6 percent in April.
Investors will also be carefully parsing the twin appearances from Federal Reserve Chairman Ben Bernanke this week, as he gives his semi-annual view on the state of the US economy to members of the House and Senate Banking Committees - colloquially referred to as the "Humphrey-Hawkins" testimony. Although he's unlikely to provide information above and beyond the most recent minutes of the Fed's June meeting - which were published last week - his testimony may still provide clues to the Fed's next move on quantitative easing.
The backdrop of his appearance is fascinating in that it comes just as the - to date disappointing - second quarter US earnings season kicks into gear and the US Presidential elections continue to focus squarely on the state of the economy and the so-called "jobless recovery". Part of the Fed's twin mandate, of course, is to assist in the provision of "full employment" in the world's biggest economy.
Here in the UK, investors will get a chance to hear similar views from Bernanke's opposite number, Governor Mervyn King, who faces a panel of British lawmakers Tuesday and will release minutes of his Monetary Policy Committee's June meeting Wednesday.
It's been a hectic two weeks for the central Bank as it has increased its own programme of quantitative easing by £50bn to £375bn and jointly launched a "Funding for Lending" scheme with the British government that aims to kick start home and small business lending to help engineer a recovery from the first double-dip recession since the 1970s.
"Overall, July's £50bn QE extension appears to have put the BoE on 'autopilot' for the next four months," wrote RBS strategists in a note published Monday. "Detecting any nuances or subtle shifts in the policy debate will be the key challenge over the next quarter or two in terms of QE outcomes in November 2012/Q1 2013. For July, the probability of any surprises or significant policy departures/signals is relatively low."
However, the more dramatic disclosures will come Tuesday when King faces UK Lawmakers following the release of the Bank's most recent Financial Stability Report.
King, his Deputy Paul Tucker and the head of the Financial Services Authority, Adair Turner, will likely face stern questions over the regulators' role in the ever-expanding Libor scandal. Last week it was revealed that US Treasury Secretary Tim Geithner, then President of the New York branch of the Federal Reserve, sent King a memo that explicitly warned him of the dangers of "false" submission in the London auctioned interest rate market the underpins $350tn in global securities.
King says he passed the warning - and the recommendations - onto the British Bankers' Association as he and the Bank had no specific regulatory remit at the time. However, the revelation calls into doubt the recent testimony of Tucker to the UK Parliament's Treasury Select Committee, in which he professed to have no knowledge of "dishonesty" in Libor market.
In Europe, investors will like focus on developments in Spain and Germany, where the latter continues to debate the legality of taxpayer participation in the region's €700bn European Stability Mechanism and the former tests the bond market for the first time since arranging a €100bn bailout for its banks and announcing more than €65bn in extra austerity measures despite the deepening recession in Europe's fourth largest economy.
Germany's Constitutional Court, the Bundesverfassungsgericht, said Monday it will announce its decision on the legal challenges to Germany's ratification of the ESM - and its participation in the European Fiscal Compact - on 12 September.