Markets seemed to hold on pause last week, as central bank activity dominated headlines, but had limited market impact. Equities slopped around, and finally slipped mildly in the absence of clear direction. The S&P 500 slipped 0.3% and Russia?s RTS fell 5.5%, but Brazil, China and India all rose. The MSCI Emerging Markets index climbed 1.5%, reflecting that the decoupling hopes remain alive.

The commodities market also lacked direction ? events in Iran continue to have little impact, as WTI lost 0.5%, gold moved similarly, and the dollar was broadly flat. Waiting out the end of the first half seemed to be the main play.

The central banks were back on the spotlight, with the FOMC declining to modify its QE provisions, but then a day later announcing some amendments to liquidity measures (click here to read). Meanwhile, the ECB pumped a massive Eur442 bln of one-year funds into the system. QE by stealth they call it. The market shouldn?t mind how the liquidity gets into the system, so long as it does.

More broadly, the media suggested that central bank caution helped cool equities. This may be the case (and indeed ought to be ? the market rally has run well ahead of economic stability, prices seem to reflect a V-shape, for want of a better expression). More logically though, the market ought to be calm about central bank nervousness: Either the economy is stabilising, in which case prices are just fine; or, it is not, in which case liquidity support should continue unabated. The base case for now is that we bumble on until 2Q09 earnings picture becomes clear, at which time markets will jump, one way or the other.

The coming week is data light (other than non-farm payrolls, about which no one should get excited right now), direction is unclear but, assuming no news shocks, the market will meander pre-emptively toward its next direction.

Monday
Europe ? Consumer & Business Sentiment. These indicators are expected broadly flat, in line with the green shoots or lack of improvement case, depending on which side of the fence you sit.

Tuesday
Europe ? CPI. Let some air out, we are going down.
US ? Consumer Confidence. Mild improvement. Ask yourself, does it match the level of stimulus?

Wednesday
US ? Pending Home Sales (May). Essentially flat.

Thursday
Europe – ECB Rate Decision. No change expected.
US ? Non-Farm Payrolls, Unemployment Rate. The market is calling for -345k jobs, real improvement and real growth of unemployment levels.

Friday
Europe ? PMI Services, Retail Sales. Not much good news here.

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