I guess the one takeaway from this week’s news-flow is that a global recovery continues to unfold but that the traditional locomotive of growth may end up pulling the train rather than the new kid on the block. The US economy has clearly pulled out of the deep dive that propelled up lower last fall and is back on the same footing that it held prior to the collapses of Lehman and AIG. That’s better than it was but is not much to crow about.
China is spending like a US Congressman trying to keep it’s domestic economy growing so it can absorb the steady migration from the hinterlands to the coastal cities and avoid a nasty bout of civil unrest should the economic merry-go-round grind to a halt.
It looks as though two locomotives are better than none. Stocks are firm, commodities are holding up well and US interest rates are on the rise.
Against this backdrop, the dollar does somewhat better as fears that the US won’t be able to pay its bills diminish somewhat which should keep the nuclear scenario of a destabilizing USD slide at bay. Rising rates and the posibility that QE will be allowed to run its course help dampen down fears of hyper-inflation down the road, a big potential dollar negative that is now called into question. Having played the destabilizing USD slide card already, the market is in the midst of a big unwind. A break of 1.4000 next week would be a strong sign that the dollar is back and the euro will once again be the odd man out.
