Credit started the week on a positive note after Chinese economic data met consensus estimates and gave participants an excuse to cover shorts.

Chinese GDP, industrial production, retail sales and fixed asset investment figures for the second-quarter all matched expectations and this appeared to satisfy the markets. But the data painted a picture of a slowing Chinese economy, and the 7.5% GDP figure was the second consecutive quarterly decline.

The composition of growth was a particular worry - investment rose and consumption fell. The government is trying to rebalance the economy away from excessive investment; the latest figures suggest that its efforts are yet to bear fruit.

Despite these concerns, the credit markets rallied, though without great conviction. The Markit iTraxx Europe tightened just over 3bps to 105bps, while the Markit iTraxx Crossover was 11bps tighter at 424bps.

CEEMEA credits were among the strongest performers, with Turkey leading the way. The sovereign has been under intense pressure recently - the Turkish lira has depreciated sharply in recent weeks. The country's central bank responded by intervening several times in the foreign exchange market, but its policy proved ineffective.

Over the weekend it bowed to the inevitable and said it will consider expanding the rates corridor. This had a positive effect on the credit markets - the rapid depletion of foreign exchange reserves was probably unsustainable in the medium-term.

Turkey's CDS spreads tightened 15bps to 204bps in response to the weekend news. But this is still almost 100bps wider than where it was trading in early May. All emerging market credits have been damaged by QE tapering speculation, and the uncertainty around US monetary policy will continue to cause volatility in the asset class.

China and Europe aside, the week is likely to be dominated by events in North America. Citigroup (112bps, -4) today followed JPMorgan with a solid set of quarterly results, with the trading and investment banking division outperforming. Goldman Sachs's earnings tomorrow will be very closely watched given the relatively strong start from the banks.

The economic data from the US was more mixed - retail sales were below expectations but the Empire State manufacturing survey beat consensus estimates.

Ben Bernanke's testimony before Congress should be the highlight of the week, unless something unexpected arises in Portugal.

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