Every horror movie needs its moments of relief, doling out false hope to the future victims and bringing the viewers’ pulse rate down, the better to make them jump the next time the blade gleams.

The European credit crisis is in one of those lulls, now that Portugal, Italy, Greece, and Spain have proved they retain access to the credit markets. On Wednesday, Portugal sold one-year bills at a yield of 4.03%, down from 5.28% on Dec. 1.

Italy’s FTSE MIB benchmark index has risen 7.6% to lead the European rally so far this year, while the IBEX 35 in Spain has rebounded 12% from its intraday low on Jan. 10.

More impressive still, they’ve done so while politicians continue to bicker over what they should do to help, and who’ll pay.

The latest trial balloon would have Greece borrowing at a “favorable” rate from the (possibly enlarged) European rescue fund to buy back its outstanding bonds, presumably at a steep discount to face value. The price of Greek debt promptly fell after this reminder that the country can’t afford to service its debt in the long run without more help from its partners.

Ireland can hardly afford the rate it agreed to pay under its bailout and is headed for an election in which the government that negotiated this deal is set to be drummed out of office in a landslide. The current line is that talk of renegotiating the bailout is strictly campaign rhetoric. But given the harsh terms imposed on the country by outsiders, it won’t take long for talk to turn to action.

And, of course, the austerity-addled economies on the continent’s fringe will need to keep attracting outside funds throughout the year. Dodging the first bullet of 2011 doesn’t mean they’re winning that war.

Chilly Britannia, Hot Eastern Europe
Elsewhere, one of the few countries to voluntarily adopt austerity is generating predictably disappointing growth, along with surprisingly high inflation. Unemployment is growing in the UK ahead of painful government spending cuts. The value-added tax has just gone up 2% and was immediately passed along via higher prices.

Meanwhile, austerity-averse Hungary has been home to this month’s best-performing emerging market. The prime minister, who rejected a belt-tightening program proposed by the International Monetary Fund last year, has called austerity a dead end. He’s opted to pay down foreign debt with the assets of nationalized pension funds, and to impose turnover taxes on the utility and banking sectors dominated by German and Austrian companies.

Hungary’s is not the only Eastern European stock market enjoying a hot January: the Czech Republic, Romania, Serbia, Croatia, Ukraine, and Kazakhstan have rallied as well. So has Estonia, the newest member of the Eurozone.

In Asia, value havens Hong Kong and Malaysia have performed best, while last year’s stars, India and Indonesia, continue to dim on worries about inflation and rate hikes. In Latin America, Brazil is the only major market in the black, after sitting out last year’s bull run across the continent.

This Week in Global
Canadian stocks have noticeably lagged their US counterparts, a very recent trend that Gordon Pape expects to persist throughout the year.

Chinese President Hu Jintao’s visit to Washington exposed deep divisions on currency and human rights.

But while President Obama is urging revaluation of the Chinese yuan as a means for combating inflation, Chris Gilchrist points out that Beijing has another weapon in its arsenal: encouraging the citizenry to buy gold. As a bonus, gold purchases keep real estate prices and China’s trade surplus in check, he argues. Last year, such purchases were up more than fourfold.

While China’s stock market still hasn’t untracked after last year’s bear market, it does present some bargains, writes Jim Trippon. A 5%-plus yield from a Chinese utility will only look better if the yuan keeps rising, as it should.