MARKETWATCH: September 13 - 17, 2010

Action this week has been in the stock and currency markets. “Stocks are on a September roll” (Wall Street Journal), as the US growth play continues despite the outlook pessimism of most economists and policymakers, some of whom support extending upper end tax cuts on the grounds of the weak economy. With conflicting data at a time of transition in the economy (economic and financial sectors are still adjusting like crazy to the shocks of the past few years), the momentum and outlook are still unclear. In the currency markets, the big move of the Bank of Japan earlier in the week to dampen the yen’s rise has boosted the dollar. But, a strong dollar will hurt our much-needed export growth.

 

The bond markets have been relatively quiet, although the growth play, reduced risk worries among market players for the time being, and relatively low returns have induced large bond holders like Pimco (the Pacific Investment Management Co, the most visible “bond vigilante”) to rebalance holdings from US government-related debt to investments with higher return for the second straight month. Lurking in the background however are potential safe haven drivers coming from the other side of the Atlantic, as Europe continues to adjust to its own financial and fiscal shocks.