[LehmanBr]

This week brings us more central bank action, with Australia’s RBA coming up tonight, and the Bank of England later this week. Some analysts are expecting the RBA to move back to its rate cutting cycle tonight, with a cut of up to 50bps. This could take some steam out of the recent AUD rally. However, the BoE meeting is expected to be a lot less exciting, since it already pulled out some serious ammunition at the last meeting, meaning that not much more can be announced. However, we might see a reference to weaker Sterling keeping UK inflation elevated, which is something to keep an eye on. And along the central bank theme, the latest FOMC minutes this week will be a very interesting read. Remember that the FOMC seemed to do a complete about-face at the last meeting, announcing that it would purchase Treasurys after several members had recently said publicly that Treasury purchases would not be the most effective method of helping credit markets. Most market participants will be very curious as to what brought about the change of heart.

The big question heading into this week is if the recent equity rally can last. Some think that markets may have turned too optimistic too soon. Last Friday’s US nonfarm payrolls report highlighted that the world’s largest economy is in the midst of a massive unemployment crisis, meaning that the economy is still not on the mend. While we realize that equity markets typically bottom out about ½ a year before the end of recession, the turn in equities usually happens when the labour market is shedding perhaps 100K-200K jobs per month, not 600K-plus jobs per month.