The US Treasury Secretary Timothy Geithner and German Finance Minister Wolfgang Schaeuble pledged to cooperate in advancing policies to stabilise the Eurozone. The ministers met on the northern German island of Sylt, yesterday.

ECB President Mario Draghi is scheduled to meet the US Treasury Secretary and the Bundesbank President to build consensus on tackling the Eurozone’s soaring borrowing costs, ahead of the ECB policy meet on Thursday. According to two central bank officials, Draghi’s proposal includes Europe’s rescue fund purchasing government bonds on the primary market, supported by ECB purchases on the secondary market to ensure interest rates are kept are record-low levels. Also, European policymakers are exploring last options to reduce Greece’s debt by an additional €70-100bn.

The European Central Bank (ECB) President Mario Draghi yesterday sent a strong signal of action in support of the Eurozone during his speech in London. Draghi said that the ECB would take all necessary steps to protect the Euro. This news comes days after concerns mounted over Greece needing yet another bailout. The ECB is likely to discuss concrete measures to tackle Spain and Italy’s soaring borrowing costs at a policy meet next week.

Ewald Nowotny, member of the European Central Bank’s Governing Council, suggested that the European Stability Mechanism (ESM) could be leveraged by granting it a banking license; this would enable the bailout fund to exchange the bonds it purchases from troubled Eurozone countries for fresh cash from the ECB. The idea had until now been shunned by the President of the ECB, Mario Draghi.

EU officials said on Tuesday that Greece is likely to be way off-track in meeting debt obligations, thus requiring the ECB and Eurozone governments to further restructure some of its €200bn debt. The latest growth estimates from Greece show that the economy contracted 7% this year.

HSBC’s China purchasing managers’ index (PMI) rose to 49.5 in July from 48.2 in June, led by an increase in the output sub-index to 51.2 – the highest level since October 2011.

Valencia, one of Spain’s most indebted regions, has sought financial aid from Madrid, raising serious fears about the country needing a full-fledged sovereign bailout. On Friday, the government further cut its GDP forecast for 2013, hinting the country would remain in recession well into 2013-the economy is expected to contract 1.5% in 2012.

German Chancellor Angela Merkel won support for the bailout for Spanish banks with a resounding majority, despite some dissent from her coalition partners. Eurozone leaders are expected to approve the aid of up to €100bn for Spanish banks on Friday-the exact loan amount is expected to be determined only in September.

In a recent report, the IMF said that the European Central Bank (ECB) could play a bigger role in countering the sovereign debt crisis by implementing further rate cuts, undertaking more bond purchases and increasing liquidity.

US Fed Chairman made no clear indications of implementing additional monetary measures at a hearing with the US Senate on Tuesday, but restated that further action to boost the economy would be taken when the need arises. He highlighted slow recovery in unemployment as the primary concern and expressed downside risks from the Eurozone crisis.

The IMF cut its global growth forecast for 2013 to 3.9% from 4.1% estimated in April and warned of further downside risks if Eurozone leaders failed to quell the debt crisis. The forecast for 2012 remained unchanged at 3.5%. The IMF projected that emerging economies would grow 5.6% and 5.9% in 2012 and 2013, respectively (each estimate is 0.1% lower than that in April). It expects the Eurozone to grow 0.7% in 2013 after contracting 0.3% in 2012.

China’s Premier Wen Jiabao warned that the country’s economic recovery is yet to establish momentum and indicated that further policy stimulus measures could be announced later this week. China also announced it would relax taxes on profits made by foreign companies by up to 50% to incentivise overseas investment. The decision also applies to dividends paid by China-based companies to foreign shareholders via the Qualified Foreign Institutional Investor scheme.

China’s economy grew 7.6% in Q2 2012, the slowest since Q1 2009, after growing 8.1% in Q1 2012. Though this was in line with expectations, recent data indicating easing inflation and cooling imports along with unexpected interest rate cuts fuelled fears that Beijing may not meet its FY2012 growth target of 7.5%. Other data released today showed industrial output grew 9.5% in June (against the 9.8% expected).

Spain announced €65bn in tax increases and spending cuts after it secured up to €100bn in aid from European partners to shore up its troubled banks. The proposal included a rise in value-added tax on goods and services to 21% and cuts in unemployment benefits and civil service pay. The announcement came after EU leaders approved an additional year (until 2014) for Spain to meet its budget deficit targets.

Germany’s top court said the verdict on the legality of Eurozone’s permanent rescue fund and the fiscal compact would take longer than expected due to legal complexities. Legislative delays in Italy and legal complaints in Germany have delayed the commencement of the European Stability Mechanism (ESM), which was expected to start in early July. German Finance Minister, Wolfgang Schaeuble, stated any significant delay in starting the permanent rescue fund could rekindle financial market chaos and urged the court for a speedier decision.

China’s imports rose 6.3% y-o-y in June, below the consensus forecast of an 11% increase. Exports grew 11.3% y-o-y compared to 15.3% in May. Consequently, the trade surplus moved up to US$31.7bn. These figures underscore the weakening domestic demand, even as China battles with faltering demand from the US and EU markets, thus increasing the government’s risk of missing its growth target of 10% in trade this year.

Annual inflation in China decelerated to a 29-month low of 2.2% in June from 3.0% in May, the National Bureau of Statistics said Monday. Inflation fell 0.6% m-o-m, double the expected rate. Producer prices decreased 0.7% m-o-m and 2.1% y-o-y. This has been ascribed to lower input prices as well as slowing global demand for Chinese goods. On Sunday, Premier Wen Jiabao said the economy, though stable currently, is facing “relatively big” downward pressures and further policy fine-tuning may be necessitated.

ECB and the People’s Bank of China lowered interest rates while Bank of England extended its asset purchase program, all within a span of 45 minutes, to boost the faltering global economy. Though this indicates intensifying worries about global growth, authorities dismissed the suggestion that these actions were co-ordinated.

Business surveys across thousands of companies indicated that the Eurozone’s economy contracted between March and June. Germany’s services sector stagnated in June, hinting that the country too may be entering a downturn, while Britain’s mild recession extended into the third successive quarter. With poor economic performance indicators suggesting that a recession is looming, the ECB is likely to cut interest rates to a new record low, while the BoE is expected to restart printing presses to purchase bonds.

HSBC’s services purchasing managers’ index, which tracks smaller firms, slid to 52.3 in June from 54.7 in May due to a drop in new orders. This contradicts China’s official services PMI data that showed the fastest expansion in the services sector in three months in June. Although the difference in the surveys is due to differing methodologies and samples, the surveys depicting a mixed picture of activity, coupled with recent data showing a drop in manufacturing raises hopes of further policy measures to boost growth.

Findings of a survey by the British Chambers of Commerce (BCC) suggest the UK economy would see positive, but ‘weak and inadequate’ growth in Q2 2012. Recent PMI data shows factory activity shrank in May and June. Similar data for the services sector is expected to show the sector grew marginally. However, easing inflation, the subsequent rise in disposable income, and higher exports to non-European countries could help the economy expand 1.9% in 2013.

The Bank of Japan’s quarterly Tankan index of large manufacturers’ sentiment came in -1 in June, beating market expectations of the index stabilising at -4. Large manufacturers also expect conditions to increase capital investment. Meanwhile, China’s official purchasing managers’ index stood at 50.2 in June, ahead of the market consensus of 49.9. China’s new home prices rose 0.1% in June, the first time in ten months.