* In the last six months financial markets have been in "risk on" mode. Some commentators have dubbed it a "dash for trash". Despite an uncertain economic backdrop risky financial assets have prospered at the expense of safe ones.
* Since last June US Treasury bonds, widely seen as one of the ultimate safe assets, have fallen by 1% while US equities have risen by 17%. In the currency world the usual safe havens of the US dollar, the yen and the Swiss franc have lost ground to the euro in recent months.
* By and large the riskiest assets have seen the greatest increases in value. High yield UK corporate bonds have returned 26% since June while UK government bonds have fallen by 2%. As the FT noted last week, "investors in the part of the...¬global corporate bond market with the highest chance of default are being paid one of the slimmest premiums over "safe" government debt for taking that risk since the boom that preceded the 2008-09 financial crisis".
* Spanish, Italian, Greek, Portugal and Ireland equities have outperformed German, Chinese, US or UK equity markets, helped by a growing perception that the ECB will do whatever it takes to keep the single currency together.
* The debt of peripheral euro area countries has risen sharply in value, with Greek government debt up 274% since June.
* The conventional wisdom is that macro uncertainty favours large, diversified businesses. Yet in the last year shares in small, quoted companies have outpaced large cap companies across most of the industrialised world, including the UK.
* Sectors which benefit from stronger GDP growth have done well. In the last six months UK consumer services companies, financials and travel and leisure businesses have seen bigger share price gains than defensive sectors including energy, utilities and pharmaceuticals.
* Last week Bloomberg reported that three of the top five performing US hedge funds in 2012 had invested in mortgage securities, one of the assets at the heart of the US credit crunch in 2008/09.
* In what some interpret as a sign of the times, Societe Generale's famously bearish investment strategist, Albert Edwards, last week said there was a "once in a lifetime" opportunity to buy European stocks.
* Investors seem to be increasingly confident that policymakers will avert another global meltdown. The last 6 months have seen the launch of a wave of new measures across the world designed to keep growth going. The ECB has said it is ready to buy at-risk government bonds without limit. The US and UK have undertaken further rounds of Quantitative Easing. Japan and China have loosened monetary policy. In the last few weeks America has managed a temporary fix to its debt crisis, Japan's new government has announced a huge public spending programme and the Basel III rules for bank capital have been eased.
* The fact that the market has liked what it has seen does not necessarily mean the global economy is out of the woods. The market changes its mind. 2010, 2011 and 2012 saw big equity selloffs triggered by bad news from the euro area. In 2011 the US debt crisis playing a major supporting role in the selloff. On each occasion equities bounced back as hopes that policy action from central banks and governments would keep growth going.
* Today's "risk on" phase could be derailed by another bout of bad news from the euro area, the US or dozens of other sources.
* The hope is that the risk rally signals an improving outlook for the global economy. Policymakers see financial markets as a vital channel through which easier policy is transmitted to the real economy – in the form, for instance, of cheaper and more plentiful credit or rising demand for risky assets.
* Today's rally has not so far been accompanied by an improving economic outlook. Global growth forecasts have fallen over the last six months and business confidence is weaker than financial market confidence.
* It may be that the current rally has more to do with a perceived reduction in the risk of catastrophic economic shocks – such as the breakup of the euro or a US default – rather than an improving outlook for growth. History demonstrates the performance of financial markets and economies do not move in lockstep.
* Stronger financial market risk appetite should be positive for economic activity. But is not the sole or most important determinant of growth. And, as the last five years demonstrates, such rallies are vulnerable to setbacks.
MARKETS & NEWS
UK's FTSE 100 ended the week flat.
Here are some recent news stories that caught our eye as reflecting key economic themes:
KEY THEMES
* The head of the International Monetary Fund (IMF) Christine Lagarde said she sees the "beginnings of recovery" in the Eurozone – euro crisis
* The World Bank downgraded its forecasts for global growth in 2013 to a "relatively weak" 2.4%, from a previous estimate of 3.0% growth, citing a slowdown in developed economies – slowdown
* The German economy grew by 0.7% in 2012, down from 3.0% growth in 2011, according to preliminary figures from the federal statistics office – slowdown
* Weekly applications for US unemployment benefit fell to their lowest level in 5 years – US unemployment
* 954,000 new homes were built in the US in December, a 12.1% monthly rise and the highest monthly 'new starts' rate in 4 years – US housing growth
* The US S&P 500 stock market rose to its highest level in 5 years on the back of better-than-expected housing and employment data – bull market
* New car registrations in 2012 fell 8.2% in the European Union, reaching their lowest level since 1995 – slowdown
* UK car production rose 9% in 2012, with exports rising by 8% to reach a record high, despite a deep slowdown in European vehicle sales – UK auto boom
* DVD rental firm Blockbusters and media retailer HMV both entered administration – high-street stress
* The Japanese stock market – the Nikkei – closed at its highest level in almost 3 years after the government and Bank of Japan announced plans to boost economic growth – Japan
* Ratings agency Fitch warned that failure to raise the American debt-ceiling in a "timely" manner would put the United States' credit rating under a formal review – debt-ceiling
* Germany's central bank announced that it will bring back to Germany £125bn worth of gold bullion it currently stores in the US and France by 2020 – gold on the move
* The Greek parliament approved new tax measures that include an increase in the top rate of tax and the closing of loopholes, aimed at increasing government revenue by €2.5bn in 2013 and 2014 – Greece
* The price of salad has risen considerably in parts of America due to adverse cold weather damaging crops, with the prices of romaine lettuce nearly tripling in a year – soaring salad
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