Another week, another Google ( GOOG) gaffe. But it was yet another central bank's move to mop up global liquidity that kept bond yields high and stocks under pressure for much of the week.

Following in the footsteps of the European Central Bank, which hiked rates to 2.5% last week and signaled more to come, the Bank of Japan this week took a first step to unravel a policy that kept rates near zero over the past five years. The Federal Reserve will meet in a little more than two weeks to deliver another quarter-point rate hike, it is widely believed.

Anticipation of these global tightening trends mostly hurt rate-sensitive assets -- bonds, commodities, financial and housing stocks -- but that's already a pretty big chunk of market leadership right there. With technology stocks continuing to sink, led by the chip sector and Google, the market wasn't looking so good by Thursday.

Wall Street managed another hurrah on Friday, perhaps inspired by springlike temperatures in the Northeast, or more likely by a stronger-than-expected jobs report, which reminded investors that rates the world over are rising for a good reason: Global growth is strong and picking up.

News that the economy added 243,000 jobs, above forecasts for a 210,000 gain, sparked a rally Friday. The Dow Jones Industrial Average rose 104.06 points, or 0.95%, to 11,076, the S&P 500 gained 0.7% to 1281 and the Nasdaq Composite rose 0.6% to 2262.

For the week, the Dow gained 0.5% but the S&P dropped 0.6% and the Nasdaq fell 2.1%.

Exchanges at 20 Paces

Google dropped 10.6% this week after the Internet search engine revealed it made another gaffe Tuesday by accidentally releasing financial forecasts on the Web in conjunction with its analyst day meeting last week, as reported here.

It's not only tech shares that are suffering but also the exchange that has come to symbolize them. The Nasdaq Stock Market ( NDAQ) took two blows this week.

First, the New York Stock Exchange, Nasdaq's archival, closed its merger with Archipelago and began trading as a public company on Wednesday. Shares of the NYSE Group ( NYX) finished the week at $74.55, 15.6% above their opening price on Wednesday.

Second, Nasdaq saw its surprise $4.2 billion bid for the London Stock Exchange turned down on Friday. Nasdaq's stock turned out for the better, jumping 9% on the day and 8% for the week, but it remains under pressure to find a sizable partner.

The battle between exchanges for transactions might get more fierce if the availability of global capital starts dwindling, a possible scenario as the world's key central banks all are aligned in raising the cost of borrowing.

The U.S. Treasury bond market continued to weaken this week, with the latest pressure seen on Friday with the strong jobs report. The benchmark 10-year Treasury bond dropped 7/32 and its yield rose to 4.76%, a good 20 basis points above where it stood in February.

The market is already fully discounting another Fed hike on March 28, which would take the fed funds rate to 4.75%, and is placing 95% odds of another hike to 5% in May. After the jobs report, the market is also increasingly pricing in a June hike. Odds that the key rate will stand at 5.25% by the end of June jumped to 22% on Friday, from 10% on Thursday and 0% a week ago, according to Miller Tabak.

The jobs report was good news for the dollar, whose main support remains the outlook for higher U.S. rates. This outlook helped the greenback withstand a surge in the yen on Thursday, following Japan's monetary policy shift and news that the U.S. trade deficit surged to a new record high of $68.5 billion in January, way above economists' forecasts.

The Politics of Wall Street

In previous months, a strong jobs report would have been trumpeted by the Bush administration as a symbol of a strong and healthy economy. It wasn't this time: The administration still licking its wounds after coming under heavy fire from both sides of the aisles of Congress.

With midterm elections looming in November, even conservative Republicans are distancing themselves from the administration's handling of everything ranging from the economy to Hurricane Katrina. Mostly, as Iraq sinks closer to possible civil war, Bush's popularity is sinking in the polls and few congressmen want to share the blame.

The latest salvo came after Bush's support to the takeover of five U.S. port terminals by Dubai Ports World, a company from the United Arab Emirates (UAE), which was seen as endangering national security.

The state-owned company was ordered Thursday by its owner, the UAE, to give up the U.S. ports, which were part of its acquisition of a British ports operator.

Coming on the heels of successful congressional opposition to China's Cnooc's ( CEO) takeover bid of Unocal last year, Wall Street is worried about a rising tide of protectionism.

According to Eddie O'Sullivan, editorial director of the Middle East Economic Digest, investors and businesses from the UAE, Kuwait, Qatar and Saudi Arabia are now nervously reviewing their portfolios of U.S. assets. "They'll want to see how vulnerable they are to the U.S. Congress," O'Sullivan told The Associated Press.

After its defeat over the ports issue, the Bush administration may also not be able to hold back congressional efforts to impose tariffs on China, which has kept its currency, the yuan, artificially low to boost its exports.

Pressure on China and the petroleum-producing Arab world, who've both recycled much of their export dollars into U.S. Treasuries, is probably the last thing the bond market wants to see at this point, notes Randy Diamond, an equity sales trader at Miller Tabak. Many strategists, including Bank of America's Tom McManus, have predicted tough times for markets this year because the second year of presidential terms is often tumultuous.

This summer, political observers say, is going to be a very volatile time. Business in Congress, including Big Business, is going to have a hard time pushing through.

One big issue: Telecom and cable companies have been raising the idea that they should be able to charge internet players such as Google, Yahoo ( YHOO) and ( AMZN) to ensure reliable access to their sites.

This idea is likely to gain more weight as consolidation continues in the telecom industry, as seen with AT&T's ( T) $67 billion takeover offer for BellSouth ( BLS) on Monday.

Congress, however, is trying to pass a bill that would protect "net neutrality," the concept that phone and cable operators shouldn't discriminate against particular Web sites to ensure consumers have equal access.

According to Blair Levin, a Washington analyst with Legg Mason, telecom providers are going to win the fight. "What will happen is that the government will prohibit making Internet service worse for a particular web site but it will give network operators the freedom to manage their networks any way they want," he says.

If that's the case, Google may have more serious problems than its recent goof-ups.
In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback; click here to send him an email.

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