• European politics and the Fed set the tone this week. Economic data played second fiddle but were generally in line with our view of a moderate global recovery next year.
  • The EU summit starting this afternoon will bring the EMU a huge step closer to a banking union, as the finance ministers have already agreed to empower the ECB as a common supervisor of (big & problem) EMU banks. They also agreed on the release of the EUR 34.3bn tranche to Greece after its successful buyback plan, putting its debt on a more sustainable footing – as we argue in our first focus piece.
  • Mario Monti's announcement to resign as Italian PM after the approval of next year's budget may bring heightened attention to the country again but it does not change Italy's political landscape. We expect February elections to end up either with a Bersani-led coalition, or a continued Monti-led technocrat government.
  • While yesterday's FOMC decision to buy additional longer-term securities and attach the forward guidance to numerical thresholds underpins the Fed's strong commitment to stay ultra-accommodative long enough, there are also signs of progress on the fiscal front. As highlighted in our second note, we expect an agreement on the fiscal cliff and the debt ceiling in time – or in 1Q13 at the latest.