Traders are expecting to recover some of last week's losses when the Australian market resumes, provided key European political issues play out as expected.
The ASX 200 fell 44 points or 0.74 per cent on Friday as shareholders reacted to US President Donald Trump's tweetstorm about possible steel tariffs and an ensuing "trade war".
Wall Street bounced back slightly in final trading for the week and Australian future markets indicated a small 10 to 15 point rise.
But AMP Capital's chief economist Shane Oliver says this could change if the situation in Italy and Germany doesn't go as expected.
Italians are expected to vote in a minority government but the question remains who will be leader.
More than four months since the German election, the country's second largest party is set to decide if it will form a coalition with Angela Merkel's party, handing the chancellor a fourth term.
"They are expected to vote in favour but if it's a close vote it could affect things," Dr Oliver said.
"I suspect the impact (on Australia) will be fairly broadly neutral."
The Reserve Bank on Tuesday is expected to leave rates on hold for the 19th consecutive month.
High levels of business confidence and promising growth forecasts have tempered low wage growth, missed inflation targets and a high Australian dollar.
"You could argue the fall in Sydney and Melbourne property prices has given the Reserve Bank more flexibility to wait and see," Dr Oliver said.
That and any more of Trump's anti-trade rhetoric could also lead to further drops in the Australian dollar, which fell about one per cent last week to 77.4 US cents.
US jobs data, Chinese trade numbers and rate decisions from Japan and Europe will be keenly followed late in the week.
A higher-than-expected 2.9 per cent lift in US wage growth last month tanked markets as investors guarded against a rate rise by the US Federal Reserve.
"The focus again will be on the wages numbers but I expect they'll sit on the 2.9 per cent level. The trend is up but it's not that significantly up," Dr Oliver said.
Australian GDP numbers are due out on Wednesday with market expectations pointing to a 0.5 per cent rise for the December quarter and 2.5 per cent for the calendar year.
Markets will be further impacted by the Australian Bureau of Statistics releasing January trade figures on Thursday, when traders hope to see a lift from hefty deficits in recent months.
