Last week I wrote that the US economy was in a sweet spot for the markets, with a Goldilocks, 'not too hot, not too cold' type recovery that won't cause the Fed to tighten, but will provide enough cheer to keep risk 'on'.
Developments since have been a nice microcosm of this paradigm, with mixed economic data - good retail sales, a good NFIB Small Business Optimism index, but low PPI and CPI readings, poor Industrial Production, Capacity Utilization, Jobless Claims and Housing Starts, good Building Permits, but a weak Philadelphia Federal Reserve confidence survey.
So, the S&P 500 continued its inexorable upward crawl, from 1626 last Thursday to 1657, as at close of business on Wednesday this week.
My positive medium-term view, (I mentioned a three month time horizon in last week's Huffington blog title), of course cannot preclude short -term dips, and I do worry that one may be imminent.
The bricks in my 'wall of worry' comprise the lingering, ever-present fear that the Eurozone crisis springs out of its box again, maybe because of Italian political instability or violent Spanish social unrest and I guess to that we could add an emergent fear that contagion rears its head again, but this time from Japan.
Over the last week, yields on 10-year Japanese Government Bonds, (JGB's), have risen from roughly 0.6% to 0.8%. Hardly an enormous rise, but large enough and fast enough to raise the spectre that Japan may be showing us a glimpse of a frightening future in which the fear of the inflation that Quantitative Easing may someday breed becomes enough in itself to drive government bond yields higher-, even if current inflation readings remain well under control, -or far too much under control, in the case of Japan.
It was certainly the case that US Treasury yields seemed to rise at certain points over the last week for no other reason apart from the explosion in JGB yields.
Watch this Friday's release of inflation expectations contained within the University of Michigan Confidence survey for any signs that these fears are developing - and keep watching them.
Once again this week the Eurozone has been quiet, only marginally enlivened by reiterations from Merkel and Schaeuble that a true Eurozone - wide Banking Union, ( i.e. one with common bank depositor insurance and a mechanism to wind down banks as a shared mission), would require a dreaded treaty change, (anyone fancy a spot of cat-herding?). Jeroen Dijsselbleom, that shrinking tulip of a Dutch Finance Minister, (NOT), was once again sticking the clog into Cyprus with less than complimentary comments about its efforts to prevent money laundering. (Maybe the Eurozone Finance Ministers have agreed to always turn to Jeroen when something uncomfortable needs saying?).
Eurozone economic measures hardly made for uplifting reading, with the first estimate of Q1 GDP coming in at -0.2%, quarter on quarter, the sixth consecutive quarter of negative growth in the Euro area, and following on from -0.3% in Q4.
Significantly, Germany and France also shared the pain, with Q1 growth figures of 0.1% and -0.2% respectively, both below consensus expectations. Paradoxically, these poor figures from the Eurozone's core countries make corrective action in the welcome shape of relaxation of crazily austere fiscal plans and the creation of joint ECB/EIB 'funding for lending-type' schemes ever more likely.
At the risk of being late to the party by the time this blog is published, it also seems worrying that equity markets seem to go up on good news, but fail to fall on bad news - always a dangerous sign. So, in summary, the medium term should be fine, but fasten your seatbelts, things may get a little bumpy up here.