Blinking in the light and still very nervous, investors have taken tentative steps back into the world's equity markets in 2012, but it won't take much to scare them and they will be looking for encouragement from policy makers in the coming week.
Euro zone finance ministers meet on Monday amid demands for faster action on fiscal integration, while the U.S. Federal Reserve's key policy making committee, the FOMC, holds its first meeting since promising to give a forecast on interest rates.
But neither event should upset what has been a very good start for riskier assets like equities and commodities in 2012 as investors start to leave safe-havens like the U.S. dollar and German government bonds and put their money to work.
Patrick Zweifel of Pictet Asset Management summed up the current mood as a moderate risk on position.
Zweifel said this was driven by a view on the business cycle as economic data in major markets like the U.S. and China surprise on the upside, the abundant liquidity provided by central banks, good valuations for many assets after last year's sharp falls and a general improvement in sentiment.
The positive tone has shown up clearly in developed market equities but emerging markets have also seen a comeback after a disappointing 2011.
The S&P 500 index in the U.S. is currently up about 4.5 percent for 2012 to date, its strongest start since 1987, according to analysts at Deutsche Bank, who noted positive Januaries have been rare since the onset of the current crisis.
If this month were to finish with the current gains it would be the 25th best January performance since 1928.
The gains are not confined to big U.S. companies. The Russell Global ex-US Large Cap Index is up 5.1 percent while its small cap equivalent has done better and is up 5.8 percent.
Small cap stocks have traditionally led in the early stages of a recovery, and the global trend we see thus far in 2012 is encouraging, said Russell Europe's head of capital markets John Velis.
The MSCI world equity index <.MIWD00000PUS>, which measures the country indexes of 45 developed and emerging market nations, fell by 9.4 percent in 2011 as investors headed for safety amid the euro zone debt crisis, but is up around 4.7 percent for the year to date.
The coming week is set to be a crucial one, especially for Europe, with the reaction to the outcome of talks between the Greek government and private sector holders of its debt likely to be the near term driver of sentiment.
In addition to the Eurogroup finance ministers meeting and the subsequent Ecofin, the annual gathering of top policymakers in Davos, Switzerland, gets under way with an opening address by German Chancellor Angela Merkel.
Pictet's Zweifel said investors are looking for more detail on the new European Stability Mechanism, on the fiscal rules that European governments will have to meet and how they will be enforced, and on the shape of any future fiscal transfer system within Europe.
We wont have all the answers next week but everything that goes into more clarity on fiscal integration will be watched, Zweifel said.
In the U.S. the two-day FOMC meeting is not expected to announce any policy changes but may signal whether another round of quantitative easing is being considered. Meanwhile President Barack Obama gives his last State of the Union address before the next election and is expected to focus on job creation and growth.
The economic outlook will be illuminated by the International Monetary Fund and the European Bank for Reconstruction and Development which both update their economic forecasts next week.
While on the data front, flash estimates of the Purchasing Manager's Indexes are due for the euro zone and Germany, while the latest German Ifo business climate index and GfK consumer Sentiment index are released.
Generally the data is expected to reflect improvements already seen in manufacturing indexes from the U.S. and China, encouraging the view that global economic slowdown will not be as severe as feared in the first quarter.
The fourth quarter earnings season also continues with European banks in focus after their U.S. counterparts reported mostly slightly weaker core revenues due to last year's market volatility. Barclays and Deutsche Bank are expected to be among the stronger performers.
(Richard Hubbard; editing by Ron Askew)