In January, the US Manufacturing Index suffered its steepest decline in two decades, dropping to its lowest level in eight months. There is no denying that the weather had a role to play in the bad data, but it is difficult to conclude that weather alone is the sole guilty party and the February data is keenly awaited. Nevertheless, a good showing in the US Jobs report this Friday is key to keeping the equity markets supported. The equity sell-off in Emerging Markets (EM) is being exacerbated by the inability of central banks to halt the decline of their currencies, despite the bold hikes in overnight interest rates and currency interventions. I have repeatedly advised to stay away from EM equities and to stay short EM currencies vs. USD, and I continue to do so. In my last newsletter I wrote “keep calm and carry on.” I reiterate this view and assure you it has not changed to “freak out and panic now.” It is advisable to look for stocks and indices that now have good upside potential in view of the sell-off. Monetary policy in the US, Europe and Japan is still on track to encourage economic expansion and growth expectations for the Developed Markets (DM) remain sound. The European Central Bank (ECB) might be right in thinking that deflation is not a threat, but at low levels of inflation the bigger risk is one of measurement error. At normal levels of inflation, overestimation of inflation may be less of a problem. At low levels of inflation however, overestimation might mean that the zone is in deflation without anyone realizing it. Later today, the ECB could cut policy rates again and/or strengthen their “forward guidance” timeline. In any case, falling inflation has to get the ECB to act with more urgency which could weaken the Euro. A weaker Euro could add some buffer back into forward inflation expectations.