The aggregate real global policy rate is still firmly negative due to the commitment to low interest rates in the major G4 economies, but we are seeing notable divergence between economies. The UK remains a textbook example of stagflation while real rates also differ markedly between emerging economies.

This weekend’s Italian elections are provoking a good deal of commentary and fueling mounting concern about possible consequences for the European debt crisis, and in particular for the outlook for Italian sovereign spreads in the short term. We think much of this concern is misplaced, not because we don’t think there is cause for concern, but because people are getting the timing wrong.

The Argentine writer Jorge Luis Borges has a short a story about two lifelong rivals, villains to the core, who are finally captured by the authorities and sentenced to death for their misdemeanors. The officer in charge of the execution, a gambling man himself, challenges them to one final act of mutual defiance. He proposes they should have their throats slit, and then race to see who can get the farthest.

With the US stock market continuing to grind out new highs, some commentators have cast doubt on the usefulness of so-called macroeconomic surprise indices as a tool for predicting the market. To add weight to the argument, these commentators even include the proprietary holders and creators of the indices, Citigroup.

We would certainly agree that looking at any one tool will always give false signals and lead to poor predictions. The ongoing divergence between a negative macroeconomic surprise index and a rising 3 month change in the S&P 500 is not a good short term sign for the stock market.

The Euro is making headlines again, this time not due to its possible imminent disappearance as a currency but rather as a result of what many regard as its undue strength. Last week’s press briefing comments by ECB President Mario Draghi to the effect that “The exchange rate is not a policy target but it is important for growth and price stability,” had put markets on their guard that the central bank was taking note of recent currency movements, and especially those vis-à-vis the Japanese yen.

Markets have been jittery in recent days, especially around fears that the simmering embers of the Euro Area debt crisis might be about to reignite. Bond yields in both Spain and Italy have risen this week, while concerns continue to…

Brazil and Spain have both come off their upper trading range bands. Other indices still look overbought

US coincident activity index turns up in line with leading indicators, more upside ahead