Market Headlines:

$       US Tsy Secretary Geithner will unveil a Public-Private Investment Program to remove legacy assets from bank balance sheets; the plan will mobilize capital from the Treasury and financing from the FDIC and Fed to leverage up to $500bn in asset purchases with potential expansion to $1trn; according to reports from a US Treasury official overnight, the Treasury will contribute $75-100bn from TARP to the legacy asset purchase program; the FDIC will provide guaranteed financing for investors at up to a 6-to-1 leverage ratio to buy the toxic assets from banks; the Fed will provide financing at a lower leverage ratio

G7      Equity futures are higher at the start of the European session in anticipation of the Geithner plan, which lifted EUR/JPY (USD/JPY), and provided support for GBP, AUD, SEK and NOK

€       ECB's Trichet: Europe doesn't need to boost spending more to combat the global financial crisis, governments must sped up implementation of the programmes already agreed; the ECB may use unorthodox measures to support bank finance

€       ECB's Weber: the ECB has more room to manoeuvre; rates could fall further; President Trichet continues to argue that a zero interest rate policy (ZIRP) would not be appropriate 

€       EU officials deny plan of ECB bailout-out plan for EU governments under stress, following a “leak” on Friday attributed to Otto Bernhardt, a member of Chancellor Merkel's CDU party who chairs the party's financial policy group in parliament

The Week Ahead

US Tsy Secretary Geithner is expected to unveil a $500bn to $1trn legacy asset purchase plan to clean US bank balance sheets in an announcement at 12:45 GMT. According to Tim Geithner's article published in the WSJ at the weekend, the Treasury will rely heavily on a “public-private partnership”, recruiting funds from private equity, hedge and pension funds, amid expectations that the public backlash against AIG bonuses has blocked the Administration's ability to get more funds from Congress. Under Geithner's new plan, private investors would make competitive bids in an auction for assets that banks would be looking to sell in order to establish clearing prices. The Treasury will contribute capital to enable financing from the Fed and FDIC to heavily subsidise investor purchases of these assets in order to bring the price that the banks are willing to sell in line with demand and extract these assets from the banks.

Meanwhile the economic picture is set to become more confusing, as the chances of a “W” global growth cycle increase. The European calendar is dominated by leading indicators for growth. The German IFO business climate survey on Wednesday is expected to show further weakness in current conditions, outlining growing slack in the Euro area, however expectations could continue to hold up.  The preliminary Eurozone purchasing managers indices (PMIs) on Tuesday are expected to stabilize near the March lows, as corporate sentiment remains unresponsive to central bank measures to improve liquidity and new business orders slack. The final figure for US Q4 GDP growth is expected to be revised lower still from -6.2% saar preliminary to -6.4%, which represents our original forecast at the start of January. UK retail sales are expected to contract in February as favourable calendar and seasonal adjustment effects drop out. The February RPI is expected to fall into negative territory, at -0.7% in February, as a result of depressed mortgage interest payments.  The UK Q$ GDP is expected to be confirmed at -1.5%QoQ, marking the worst decline since 1980.

In other policy events today, ECB's Weber attends a hearing in German Parliament on consumer credit rules at 12:00; Weber will also gives a keynote speech at the conference "Forecasting and Monetary Policy" at 12:50. ECB President Trichet speaks in Mexico at a conference on "Financial crisis and commodity prices” at 23:00. Fed's Rosengren (non-voter) will testify before a House Financial Services Committee hearing on credit for small and mid-size businesses at 14:00. Treasury Secretary Geithner gives a dinner speech at 22:00.

Markets

Equity traded stronger in Asia, encouraged by expectations of the US Tsy Secretary Geithner's plan to resolve toxic assets. The Dow Jun09 contract is up 171, the Dax future has rallied 80; the Nikkei and Hang Seng rose 3.4% and 4.2% respectively, contributing to the notion of improving investor risk sentiment. This morning's rally is unsurprisingly led by financials following Friday's correction which saw the S&P financials index slump 5.2%, reflecting the subsiding effects from the Fed's surprise shift towards quantitative easing and fears that regulatory steps that counter central bank efforts to promote risk-taking. With the health of the global financial infrastructure still compromised, global economic slack growing, and near-zero risk-free rates (nominal or real); central banks look likely to continue to focus on expanding their policy capacity to provide stimulus via currency creation. This should eventually have relatively little impact on “QE” government spreads and currency majors, but it should send the broad investor community looking for gold, literally. The monetary history of the past two decades suggests that excess monetary easing, while it may fail in creating hyper-inflation, more often than not results in an asset bubble. Government debt looks likely to be the next bubble and as faith in paper money dissolves, investors need a strong hedge against the risk of asset devaluation. The trouble is that, unless Spain's discovery of Central and Southern America in the 16^th century is repeated, the world is short of “stores of value”. Buy gold and gold-like assets like NOK; we like the latter given the currency's unique combination of strong safe-haven attributes and its ability to rally on improving risk sentiment/rising global liquidity.

In debt supply, the BoE will offer to purchase up to £6.0bn in gilts this week. Today's operation is for up to £2.5bn in gilts maturing in 2020 - 2032. Wednesday's purchases of up to £3.5bn will fall within the 5-10yr maturity spectrum. The UK will sell £1.75bn in 2049 gilt on Wednesday and £1.1bn in 2022 inflation-linked bonds on Thursday. The US will sell $40bn in 2yr notes on Tuesday, $34bn in 5yr notes on Wednesday, and $24bn in 7yr notes on Thursday. The auctions fall within the Fed's buy-back programme which will be launched on Friday. Germany will sell €7bn in 2014 Bobl on Wednesday.