The ECB has played an ingenious trick on the market. By boosting its balance sheet by a massive 64% or EUR1.2 trillion from June 2011 to the peak of EUR3.1 trillion on July 29, 2012, it was able to withdraw stimulus and make it seem as if it is a hard-money, Bundesbank-dominated, central bank. It’s not. The ECB can - and most likely will - again ramp up QE when the need arises.

In November 2012 we maintained our bullish view of the US economy, writing that “the ETM Business Cycle Index is slightly above neutral territory at 0.072, positioning the US economy in a cyclical upswing phase of the business cycle.” Since then, and particularly in the first quarter of 2013, US economic data has surprised consensus strongly to the topside, validating our increasingly bullish cyclical view of the US economy.

The BRICs are facing a challenging mix of slowing growth and inflation threats.  While the short term outlook among consensus commentators has been for monetary tightening in these countries, cyclical headwinds, faltering stock markets, and firming currencies paint a picture of already tightening monetary conditions.  If growth pressure intensify as we believe they will, pressure will mount ultimately for greater monetary looening rather than tightening.