Risk remained a negative concept last week, as investors stuck to aversion trades in all major markets. China was the only market that managed to rise, and even there the A-shares only climbed by 0.8%. The global selling was led by commodities. WTI Oil fell 8.75%, closing below the $60/bbl, on a combination of bearish data (inventories rose far above expectation) and increased belief that prices rose on speculative rather than fundamental factors. Certainly, prices in the $50-60/bbl range look more sustainable. But, there is little sign that the downward trend has finished yet.

Equities sold too. The S&P 500 lost 1.9%, Brazil declined 3.4%, India 9.5% and Russia lost 12.1%. China aside, global equities continue to demonstrate high correlations. The drivers for this sell-off were less clear: The green shoots thesis is broadly on track. True, we?ve yet to see any real green, but indicators continue to indicate a turning ahead. And even Russia is showing signs of benefiting from lower interest rates and ruble pressure eases.

The selling, then, is rather based on the assumption that the rally went too far too fast. If economic data do prove disappointing, the rates of decline should be expected to accelerate. While MM broadly supports the notion that the rally was misplaced, expects equities to be range bound for an extended period and sees limited upside from here, the case for a sharp is equally unclear if the expected green shoots do emerge in 2H09.

With base data so depressed and the inventory cycle due to kick in, year on year comparisons should turn green by 4Q09, if not sooner. Of course, this will not be a healthy recovery from what has been a painful downward cycle, but unless corporate guidance proves unusually cautious, it may take the market some time to grasp real valuations and the true depth of uncertainty out there.

Alcoa kicked off the earnings season with positive news last week, but the market seems likely to continue its downward adjustment ahead of the main earnings news flow, which kicks off this week. Whether the weaker tone is justified will depend on broader confidence and the aforementioned corporate guidance. But, summer is always the silly season, with lower volumes and higher volatility. This year, there is less reason than ever to stay at your trading desk ? the movements we can expect over July and August are all the more likely to be thin and erratic.

Why invest then? In the developed world, there is very little reason. But, the emerging markets are in a different place, utilising counter-cyclical savings to boost economic growth without risking debt spirals. For now, emerging market indexes remain high beta plays on global growth. But by year end, the market should have moved closer to understanding that these markets are leading growth, their correlations to the developed world should break down, in all asset classes.

Here are some of the key data we are watching this week.

Monday
No major data releases expected.

Tuesday
Europe ? Industrial Production (May). Forecast up MoM and less down YoY, this would be a positive achievement.
US ? Retail Sales (June), PPI (June). Rise of 0.5% expected in retail sales, potential for surprise either way and the market will care. In the past, this number has carried more weight than it is likely to in the future. PPI is projected less bullishly ? down 5.3% YoY, and up just 0.1% YoY after stripping out food and energy.

Wednesday
Europe ? CPI (June). Expected down 0.1% YoY, Europe?s CPI has been falling steadily, now it is expected to enter negative territory. Again, the inflation trade is shown to contradict the reality.
US ? CPI (June), Industrial Production (June), Capacity Utilisation (June). Weakness across the board.

Thursday
No major data releases expected.

Friday
US ? Housing Starts (June). Expected flat, but this is no longer the driving parameter it once was.