Global markets week ahead: policy baton passes to central banks; investors likely to be underwhelmed

The market spotlight falls on central banks in the coming week in hopes they might follow the lead of Europe's politicians with measures to address mounting economic concerns, but investors may be underwhelmed.
Monetary authorities in Europe, the UK, Australia and Sweden are all scheduled to meet, while a data flow dominated by Friday's US payrolls report and a clutch of manufacturing and service sector surveys is expected to point to slowdowns on both sides of the Atlantic.
"The world economy is slowing, and markets are increasingly impatient for a major policy boost," Andrew Milligan, Head of Global Strategy, Standard Life Investments said.
The debt crisis in Europe, the huge budget adjustment facing the United States - dubbed 'the fiscal cliff' - and political transition and economic reform in China show that the remedial actions governments can take are often of limited value.
But barring a possible interest rate cut by the European Central Bank that seems unlikely to kick-start lending activity, the slowdown may not be sharp enough yet to prompt more than a cursory response from the world's major central banks.
"It may be the world economy has to slow more before the central banks respond," said Milligan. As they enter the third quarter, most world asset markets will be licking their wounds after three difficult months.
The safest of safe havens - US Treasuries and the dollar -dominating the gainers, though emerging market debt also did well.
The dollar measured against a basket of major currencies gained 4.8 percent in the second quarter, while US 10-year Treasuries returned 6.8 percent.
Global equity markets, as measured by the MSCI All Country World index, fell 8 percent after an 11 percent rise in the first three months of the year, when central banks opened the liquidity taps.
The quarter's weak performance masked some regional divergences: the S&P 500 index in the US fell around 5.7 percent while Japan's Nikkei average fell 11 percent.
In the euro zone, where the political crisis in Greece and the funding problems facing Spanish banks dominated, the STOXX Europe 600 Index ended down around 5.4 percent for the quarter with Spain's IBEX off 13.7 percent.
Markets should get off to a stronger start in the third quarter as investors respond to surprise policy action at a European summit, where leaders agreed to cut borrowing costs for Italy and Spain, and eventually recapitalise the region's banks.
Most attention in the coming week will focus on Thursday's ECB meeting with expectations of a rate cut rising.
"Overall you have picture of weakness in the euro area and a contraction likely to continue in the third quarter so the ECB will have to react," said Thomas Costerg, European economist at Standard Chartered Bank.
The ECB has pumped more than 1 trillion euros into the banking system and there are hopes it could announce more cheap long-term loans or other non-conventional measures such as a resumption of its bond purchasing scheme.
But the latest poll by Reuters found only a minority of economists expect it to go this far.
"As regards non-conventional measures, the ECB is more likely to wait and see for a bit longer," said Frederik Ducrozet, senior euro zone economist at Crédit Agricole Corporate and Investment Bank.
An easing in policy is also expected from the Bank of England on the same day, but this will likely be limited to the purchase of an additional 50 billion pounds ($77.5 billion) of government bonds. That move has been so widely flagged that all but two of 55 economists polled by Reuters expect it, against only two of 50 who forecast the policy change at a similar poll in June.
On the other side of the world, Australia's central bank is likely to leave its cash rates unchanged at 3.5 percent at its meeting on Tuesday, having already cut rates in May and June.