Markets so far this week have reacted to mixed news on the growth front in the US plus new concerns on inflation. As things start to wind up for the weekend, traders are also nervously watching news from various parts of the world.
Markets in the U.S. and elsewhere have focused on signs that the U.S. economy continues to recover, although still at a very gradual pace. January’s payroll employment data and updated benchmarking for 2010 indicate that job creation remains very sluggish, even adjusting for possible weather-related effects which may have held down jobs numbers.
In what is sure to be a wake-up call for the Japanese government, Standard & Poor’s cut Japan’s credit rating today for the first time in nine years. Japan, whose credit rating was downgraded from AA to AA-, faces a debt of 943 trillion yen ($11 trillion) - more than double of their annual economic output.
The International Monetary Fund (IMF) released its World Economic Outlook update today, on the eve of two big moments for U.S.
Over the past week, interest rates on the benchmark 10 year Treasury bond rose. Key drivers were: less safe haven demand for US government instruments (a “flight to quality” typically pushes down interest rates) and increased demand for US government instruments with higher yields, based on signs that the US economy is continuing to recover.
Economist Barry Eichengreen warned the U.S. over at VoxEU about the consequences of "economic mismanagement"--essentially, not taking steps to address the budget gap. Focusing on the international economy and the role of the dollar, Eichengreen says that a fiscal crisis in the U.S. would make the dollar "tank" and that "the impact on the international system would not be pretty." Here's what he had to say:
Wall Street banks have been drastically cutting their holdings of U.S. Treasuries, according to Bloomberg News. According to most analysts, this is a reaction to expectations of a stronger economy, which is leading banks to invest more heavily in private equities as opposed to Government bonds. While this is certainly good news, it does highlight the risk that U.S.
Nearing the end of the week, markets are still wrestling with the same cross-currents they faced last week, but with a new wrinkle - Spain.
The growth play: With most forecasters sticking to their stronger near-term growth forecasts since the tax cut deal was announced, traders have continued to rebalance portfolios away from bonds and into stocks. Still, growth is not expected to be strong and data has continued to be mixed.
What a week it’s been. Just look at the ups and downs of the yield on the benchmark 10-year Treasury note.
Of particular interest for us, Fed Chairman Bernanke noted the following in his speech today on “Rebalancing the Global Economy” at the European Central Bank’s conference in Germany:
“For their part, deficit countries need to do more over time to narrow the gap between investment and national saving. In the United States, putting fiscal policy on a sustainable path is a critical step toward increasing national saving in the longer term.”