August is over and it actually was not as bad for stocks as widely advertised.

Yes, it was the worst month for global equities since May last year and the worst August since 1998. But investment doesn't depend on the moon's cycles.

If you had bought into MSCI's all-country world index <.MIWD00000PUS> at the low on August 9, you would have gained a healthy 8.5 percent or so for the rest of the month.

So there is a flicker of brightness heading into a new week. But it could easily be extinguished by the grim economic picture, the near-toxic, euro zone debt crisis, and policymaker struggles over what to do next about both.

The past week was a harsh reminder of the fragility of global growth, exemplified by Friday's extremely poor U.S. jobs data and a series of weak global manufacturing reports, including from supposed euro zone powerhouse Germany.

As a result a big focus of the coming week will be the Group of Seven finance ministers and central bankers meeting in Marseilles at the weekend.

Investors will be looking for some degree of cohesion and coherence from the meeting about both the state of the economic slide and what policymakers are going to do about it.

In short, there is a basic assumption that at some stage more asset-buying quantitative easing (QE) to pump up markets and growth is on the cards, with the only questions being when and in what form.

It's inflation-dependent. There is probably a bias to do it but it's difficult to justify with higher inflation, said Jeremy Armitage, global head of research at State Street Global Markets, explaining central bank caution.

Minutes from the Federal Reserve's latest meeting, released in the past week, nonetheless suggested that the Fed may be closer to a third round of QE than Chairman Ben Bernanke implied in his Jackson Hole speech.

Bank of England dove Adam Posen, meanwhile, called in a Reuters blog -- -- for a new round of G7 QE to offset large fiscal contraction in major economies.

Various central banks also meet during the week, including the European Central Bank, which may be forced to take a more dovish tone given the deteriorating euro zone economy and debt crisis.


The euro zone crisis has taken many forms, but basically entailed member state countries coming together after a lot of public angst and cobbling together compromise bail-out packages for Greece and other peripheral laggards.

Some of that could easily unwind in the coming week. For a start, Germany's Constitutional Court, is to rule on Wednesday whether Berlin broke the law by contributing to the bail-out packages.

That goes along with news that the international lenders mission that includes the International Monetary Fund has left Greece without determining whether Athens has met conditions for the next tranche of emergency loans.

It is widely expected that the German court will say the government was within the law -- which could lift core euro zone bonds -- and the IMF move is being played down as being technical.

But both the upcoming judgment and what the IMF did are the kinds of things that build uncertainty, which financial markets abhor.

Focus, in the meantime, has been shifting toward Italy, which is struggling to come up with its promised austerity package. With a 1.9 trillion euro debt pile, yields on 10-year government bonds have crept up steadily since the ECB intervened last month to buy Italian paper.

Anecdotal evidence of large-scale ECB buying to ensure Italy and Spain could sell bonds this past week may be confirmed on Monday in the bank's latest bond purchase data.

Greece is to auction 1 billion euros of six-month T-bills on Tuesday. It has been forced to concentrate its borrowing via monthly short-term debt sales.


Both ailing global growth and the European debt imbroglio may actually be obscuring attempts by investors to get back on- track after the misery of the northern hemisphere summer.

The performance of global stocks in August suggests that most of the bearishness was linked to the uncertainty over Standard & Poor's downgrade of U.S. debt.

The month ended with a four-day rally -- since broken -- and the latest figures from Thomson Reuters' Lipper show U.S. equity funds with net inflows of $6.3 billion in the week to Aug 31, the largest influx for 17 weeks.

Reuters latest asset allocation polls also show hefty cash holdings among leading investors, meaning that money is available to move.

All it may take is a little more certainty.

(Additional reporting by Mike Dolan; editing by Stephen Nisbet)