continues to weigh down on economic growth, yet recently some encouraging news has been released that ignited optimism among investors, especially as the U.S. government decided to increase spending in a bid to battle the ongoing recession.

The U.S. Treasury in a combined effort with the Fed and the FDIC will start purchasing banks’ bad debts in order to revive lending and accordingly lead to financial stability, meanwhile the Fed started this week to purchas long term treasuries, as they also seem to be determined to put the credit crisis to bed once and for all.

Meanwhile President Obama is expected to announce further aid to the auto industry, which continues to feel the heat from the crisis amid further tightening in credit conditions, as the auto industry is going through its toughest environment since the 1980s.

Accordingly investors dumped their dollars and headed for higher yielding assets, which indeed weakened the dollar and boosted other currencies against it, while stock markets extended their rally yesterday and seem to be on course for further gains over the upcoming period, given that investors continue to feel optimism over the outlook for global growth, especially the outlook for the world’s largest economy.

The U.S. Department of Commerce will release the income report today for the month of February, personal income is expected to drop 0.1 percent following the prior reported rise of 0.4%, as job losses mounted in February leading consumers to further retrench their spending.

Personal spending accordingly is expected to rise by 0.2 percent down from the prior reported rise of 0.6 percent, as tightened credit conditions, rising unemployment, and falling home values continue to weigh down on consumer spending.

Meanwhile the Fed’s favorite indicator for inflation, core personal consumption expenditures is expected to rise in February by 0.2 percent up from the prior rise of 0.1%, while core PCE is expected to rise by an annualized 1.6 percent inline with the prior estimate. PCE deflator is expected to rise by an annualized rate of 0.8% up from 0.7%.

The Fed signaled that it’s targeting an inflation rate around 2 percent over the long term, while rising oil prices might affect the outlook for inflation especially since oil prices are now trading above the $50 a barrel mark, however oil prices should continue to fluctuate over the upcoming period and the effect of the ongoing recession should continue to pose downside risks to inflation.

We should also note that the Fed’s quantitative easing does indeed hold huge upside risks to inflation over the long term and accordingly the Fed will have to deal with that once they can make sure that the economy is back on course for growth and prosperity.

The University of Michigan will finish today’s U.S. fundamentals as it will release it final estimate for confidence in March; the index is expected to rise slightly to 56.8 from the prior estimate of 56.6.

Moving on to Europe, where Germany will release today their import price index for the month of January, import prices are expected to have dropped by 0.4% following the prior drop of 4.0%, while the import price index is expected to have dropped by an annualized 6.0 percent following the prior drop of 5.1%.

Germany will also release its consumer price index for the month of March, the index is expected to rise by 0.1% down from the prior estimate of 0.6%, while CPI is expected to rise over an annualized rate of 0.7% down from the prior estimate of 1.0%, CPI EU-Harmonized is expected to rise by 0.1% down from 0.7%, while compared with a year earlier Harmonized CPI is expected rose rise by 0.7% also down from 1.0% reported in the prior estimate.

The euro zone on the other hand will release industrial new orders for the month of January, industrial orders are expected to have dropped by 5.6% following the prior reported drop of 5.2 in December, while compared with a year earlier new orders are expected to have dropped by 28.4% following the prior fall of 22.3%.

Finally, the U.K. economy will release its final GDP estimate for the fourth quarter of 2008, the U.K. economy is expected to have contracted by 1.5% unrevised from the prior estimate, while the economy probably shrank over an annualized 1.9 percent also unrevised from the prior estimate.

The U.K. economy remains under huge pressures amid the worst financial crisis since the Great Depression as credit markets froze and banks stopped lending, meanwhile home values in the U.K. continued to drop, as the housing sector continues to deteriorate after a decade of rising prices.

Meanwhile Prime Minister Gordon Brown signaled that the U.K. economy might indeed need another fiscal stimulus in order to help revive economic activity and the Bank of England Governor was quick to support the Prime Minister, despite that the BoE did almost everything they can including a very aggressive monetary easing in addition to quantitative easing.

Central bankers around the world continue to work relentlessly in a bid to revive growth, however the credit crisis proved to be far more worse than any one had ever expected, meanwhile governments worldwide are also combining efforts in a bid to find a solution for the crisis and its aftermath…