* Euro zone worries put focus on capital preservation
* ECB meeting eyed for signs of future support
* Riskier assets expected to remain under pressure
By Richard Hubbard
LONDON, April 27 Caught in a vice between
sluggish global growth and worldwide debt deleveraging,
investors face another week of potentially gloomy economic news
with no relief in sight from the growing concerns about euro
The focus will be mainly on the European Central Bank's
monthly policy meeting, the U.S. non-farm payrolls report and
data on the outlook for the world's manufacturing sector, which
still represents 20 percent of the global economy.
But these events are not expected to offer much diversion
from the steadily worsening crisis in the euro zone, which is
driving demand for safe haven assets.
"It's about capital preservation from an investor point of
view," said Richard Batty, global investment strategist at
Standard Life Investments, which has $240.7 billion of assets
"It's a risk averse attitude that the market's taking."
Standard Life's global outlook for the second quarter
remains moderately cautious, favouring U.S. equities and
corporate debt due to signs of strength in that economy, and
remaining neutral to light in riskier assets in Europe and Asia
where it sees problems affecting a number of economies.
These problems have become much more prominent in Europe
over the past week where new data signaled a worsening in the
outlook for many countries with the worries spreading to the
euro area's bigger and more stable economies.
An ECB region-wide survey of bank lending published last
week, the first to fully take into account the 1 trillion euros
($1.3 trillion) it injected into the banking system, found that
while banks were more willing to lend, the demand for credit
from companies has fallen.
This weakness has been reflected in surveys of business
sentiment across the euro area and in many corporate earnings
reports, especially from banks, as Europe's first quarter
earnings season gets into full swing.
In the markets the main impact has been to drive down yields
in German government bonds and U.S. Treasuries to around record
lows, while the main index of European stocks, the FTSE
Eurofirst index, actually had a fairly flat week and
the euro was little changed.
The gloomier outlook has been encouraging calls from the
region's political leaders for a shift away from tough
government austerity measures to more growth-oriented strategies
but is not expected to prompt any action from ECB policymakers
"The ECB is going to stick to its wait-and-see stance,
without any meaningful changes in rhetoric," Unicredit economist
Marco Valli said.
The market will, however, scrutinise the regular news
conference after the meeting for signs the bank is preparing to
ease policy in some form.
A Reuters poll of 60 economists found three-quarters of them
expect the ECB will restart its government bond-buying programme
at some point in the next three months because of the growing
tensions in the euro zone bond market.
The political rhetoric on the need for more growth is also
likely to increase over the coming week in the run up to the
final round of the French presidential vote and the Greek
general elections on Sunday, May 6.
But this is likely to fall on deaf ears in the markets.
"For us there's a lot of talk there, but we'd be surprised
if anything concrete comes about," said Standard Life's Batty.
Jim Reid, credit strategist at Deutsche Bank, said what was
really needed is much better policy cohesion between euro zone
governments and the ECB.
"There are signs that the stress in the market now will lead
to a revisiting of the policy response and an acceptance the
current mix is not great."
Spain, the euro zone's fourth largest economy and current
focus of the debt crisis, will provide a real test of where
investor sentiment stands when it sells 3- and 5-year bonds on
The sale will be even more closely watched after the country
suffered a surprise two-notch credit rating downgrade which
pushed yields on its 10-year debt over the key six percent level
The amount investors demand to hold Spain's debt rather than
safer German bonds has risen about a 120 basis points since
Prime Minister Mariano Rajoy announced in early March the
government was abandoning its deficit-reduction targets for the
Outside the euro zone's problems, growth is the biggest
concern facing investors following a disappointing 2.2 percent
rise in U.S. first quarter economic output.
The U.S. is due to report that non-farm payrolls in April
grew by 175,000 on Friday, a rebound from the surprise
rise of only 120,000 in March which did much to unsettle growth
hopes across all the markets.
Before the jobs numbers, the Institute for Supply Management
(ISM) will issue an update on manufacturing activity for April
The Chinese growth outlook also be further clarified with
the release of the government's manufacturing purchasing
manager's series on Tuesday and the non-manufacturing PMI on
Emerging market equities have performed well so far this
year with the MSCI emerging index up over 11 percent
for the year to date, but growing worries about the health of
euro zone peripheral states have reversed some of these gains
over the past six weeks.