Believers in the “January Effect” would be heartened by the first trading day of 2011, which saw equities indexes around the world jump by more than one percentage point. What ensued was actually a fairly lackluster week for most markets. The US and a handful of Asian markets ended the week higher while other Asian, as well as most Latin American and European markets, trended lower.

The Eurozone wasted no time in getting back to the limelight, with Portugal taking center stage as the region’s bad boy for now. However, a €1.25 billion Portuguese bond issue went off without hitch this week, and that has caused markets in Europe and elsewhere to regain their footing and move ahead to new highs for the (admittedly very short) year to date. The Eurozone is likely going to stay in focus, however, as debate continues to swirl around the prospects for Spain and Belgium, and broader concerns about the currency itself fail to dissipate. Having said that, at least one vote of confidence in the Euro comes from tiny Estonia, which joined the currency union this year.

Bond markets have been on the losing end versus equities since last fall, and so far activity in the New Year could best be described as “flat” – little movement in the broad market or Treasuries, with corporate high yields and emerging markets bonds trending upwards. Yields on the 10-year US Treasury note are up almost 100 basis points from their October 2010 lows. Even more ominously, the Bond Buyer Muni Bond Index has fallen by more than 11% in the past three months (by comparison, the Dow Jones Corporate Bond Index has declined by just over 2% for the same period). The municipal market is a large question mark for the year ahead, with state and local municipalities in many locations exhibiting severe economic weakness.

US corporate earnings are underway and the results so far appear encouraging across a variety of industry sectors from materials to energy, financials and retail. Investors will be watching earnings closely for signs of limited additional upside to the strong gains achieved in 2010. So far the evidence is not bearing out this concern: Alcoa produced its best quarterly results in two years while other companies from retailer Sears to homebuilder Lennar comfortably beat consensus estimates. We are starting to see some indications from the economist community that US growth could trend higher this year than expected, though 3.5%-plus growth is by no means a consensus at this time.

The unemployment figures released last Friday showed a drop in the benchmark rate to 9.4% but also revealed lower-than-expected private sector job creation. US jobs prospects will continue to be a primary focus of attention this year, as investors wonder whether consumer activity will continue its nascent growth trends. To the extent the all-important US consumer spending metric remains muted it will make US earnings much more dependent on events in other markets – and we can expect to see many eyes fixated on events in the large growth engines of China, India and Brazil. The delicate balancing of inflationary potential and currency rates – especially in China – presents a persistent source of concern and focus.

One way or another, we’re back in the thick of it, and no doubt interesting times await.