The week started like it was going to be a potential tipping point for risk assets, but ended with the markets seemingly nonplussed by political upheaval in Italy and the US.

Silvio Berlusconi's remarkable volte face on Wednesday - when he decided to back the Prime Minister Enrico Letta in a no confidence vote - appears to have extinguished the destabilising threat from Italy, at least for now.

The sovereign"s CDS spreads hit 280bps on Monday; by Friday afternoon it was trading at 235bps, the tightest level for over a month.

Italy is used to political turmoil - the office of prime minister has changed hands 40 times since the second world war. The US, on the other hand, is a model of stability compared with most countries, so it was all the more shocking to see its government shutdown this week.

As we go into the weekend there is little sign of compromise from either side, but the markets still expect the issues to be resolved before the debt ceiling debate rears its ugly head later this month.

Perhaps that explains the why the markets gave a collective shrug to the imbroglios in Italy and the US. But there is an alternative reason, and it is a familiar one to experienced market participants: central bank activism.

Italy's political debacle had little effect on the spreads of other peripherals, an outcome that would have been inconceivable in 2010-2012. The difference now is that the ECB has made a credible commitment to intervene in the bond markets through its Outright Monetary Transactions programme, though it has yet to do so.

The markets are taking Mario Draghi's promise to do whatever it takes to save the euro at face value, hence the lack of contagion.

And in the US, the Federal Reserve is preparing to taper its quantitative easing programme, but the shutdown may persuade it to stay its hand. Risk assets have benefited from the Fed's monetary largesse, and would like the status quo to continue for some time longer.

We will find out next week whether the US government gives the Fed even more reason to think again.

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