MacroScope

from Global Investing:

The Big Five: themes for the week ahead

Five things to think about this week:

EYE ON CENTRAL BANKS
-  Investors will be on the lookout for any further signals on quantitative easing when the European Central Bank and the Bank of England announce their decisions on Thursday. Analysts see the ECB leaving rates on hold but pushing ahead with and possibly extending a plan to buy up to 60 billion euros in covered bonds. The focus will also be on growth forecasts for the next year and the message they send about the pace of any recovery.

COMMODITIES SUPERCYCLE, CYCLICAL SURGE
- Oil prices are nearly double their four-year low set in December and the Baltic Dry Index, which tracks rates to ship dry commodities, has risen more than 300 percent since the start of the year. Coupled with a weakening dollar, investors might be bracing for the return of the supercycle in commodities. The resultant inflationary pressures could push investors away from government bonds and into the arms of equities.

EMERGING DISCONNECT
- High-yielding emerging market currencies remain weak, weighed down by poor domestic growth prospects even as emerging equities rise along with their developed market peers, buoyed by hopes of a global economic recovery. The disconnect is likely to persist with governments, particularly in emerging Europe, looking likely to lower interest rates further.

IN SEARCH OF MORE POSITIVE DATA
- Green shoots have been popping up at an encouraging rate, with consumer confidence and home sales data in the United States, and improved Euro zone economic sentiment being the latest signs that a downturn may not be as steep as many originally feared. The week provides more key tests for this hypothesis: U.S. non-farm payrolls, core personal consumption expenditure, factory orders and ISM data.

TREASURY YIELDS
- A sharp rise in Treasury yields driven by worries over a record U.S. budget deficit has pushed the yield curve to its steepest on record, and Treasuries yielded more than euro zone government bonds for the first time in seven months. While surging yields could threaten the equities rally as businesses and consumers fret about increased borrowing costs, auctions attracted strong buying from foreign central banks, putting a floor under the dollar.

from Global Investing:

Big Five

Five things to think about this week:

VALUATIONS
- The MSCI world stocks index has rebounded 37 percent since March, the VIX fear gauge has hit its lowest level since September 2008, and positive earnings surprises in Europe are marginally outstripping negative ones. But there are serious questions over the equity market's ability to sustain its rise.

MACRO SIGNALS
- Trade data from the U.S., Canada and the UK, all out in this week, will be combed for signs of any recovery in global commerce. Also due are flash GDP data from the euro zone, industry output for the U.S., France, Italy, the euro zone and the UK, and Japan machinery orders.  
  
QUANTITATIVE EASING
- The ECB has finally shown willingness to deploy unconventional easing measures but it's hard to judge the success of such steps. Narrowing credit spreads, stock markets' bounce and gains in emerging market assets all show efforts to restore confidence in the financial system are having an effect. But if getting and keeping bond yields down is the yardstick for success, it's unfortunate that 10-year UK and U.S. government bond yields are back up to levels seen before the announcement of quantitative easing in those countries. And diminishing returns on further balance sheet expansion raise questions over how much more money central banks can print before inflation fears start to preoccupy policymakers and markets.
  
COMMODITIES
- Confusion over the reasons for the commodities rally has reduced the usefulness of commodities prices as indicators of the industrial outlook. An apparent economic recovery in China has helped to boost the CRB commodities index by 21 percent from February's lows. But how much does the rise reflect a change in supply/demand for commodities, and how much is it simply due to idle money flooding back to unstable markets? Similarly, why has spot gold remained strong above $900 as jitters over the financial system decrease? Gold could be reflecting expectations that recovering economies will boost physical demand for the metal, but it may also be responding to fears of currency debasement after central banks' radical monetary easing.

EMERGING MARKETS 
- Rising commodity prices and an easing dollar have offered a perfect environment to re-enter emerging markets. The coming week's  EBRD meeting will focus attention on central and eastern Europe and how it is coping with a nasty period of refinancing (albeit less dire than the IMF initially estimated).

Murder, intrigue and the Beige Book

OK, so we’re a little geeky around here, but we just couldn’t resist sharing some of the juicy tidbits in the Federal Reserve’s Beige Book summary of economic activity.

We knew the economy was in bad shape, but thanks to the good people at the regional Fed banks we have now learned:

1. New York’s Broadway theaters saw a drop-off in demand starting in mid-October.