Looking at the coming week there are several key drivers that could change market sentiment, or reinforce it. On Thursday the ECB will announce the participation in the LTRO and China will reveal inflation and industrial production Wednesday and Friday respectively.
In terms of the LTRO, a lack of participation will confirm more action will be taken in terms of outright bond purchases. One of the goals of the ECB is to grow the balance sheet by €1tln which will difficult without bond buying. Limiting the amount of bond buying to €500bln will not be enough to make dents in the market at the current state, but any increases in the buying will no doubt be met with pushback from Germany. Look for a poor turnout in the LTRO to add more uncertainty to the overall euro zone situation.
China's numbers will no doubt bring about volatility in the energy market as well as the Chinese equity markets, which have been hot as of late. Poor reading in inflation could provide wiggle room for more stimulative measures but a poor manufacturing number will no doubt cast a shadow over markets globally.