A slew of headlines hit around 3pm, the Fitch ‘warning’ against U.S banks being cited as the main culprit for market swoon. It was slightly negative in tone, but nothing that should have spooked the market.
What’s really going on is attention is turning to USD funding stresses. You’ll be hearing about LIBOR spreads next few days with continued uncertainty in Europe. Also, considering it was the EURO that led the U.S market slide, the Fitch so called news is domestic really and shouldn’t have moved the Euro. In all, this (3pm headlines) will all be irrelevant tomorrow as this looked more like a market ‘lulled’ to sleep over past sessions. The volume has been pathetic this week as all seem to be stuck waiting for others to do something about the technical “triangle” consolidation. Yesterday (Tuesday), it looked like the top at SP1264 may go, but it was refused. So eyes turn to lower end today of 1236. As this 3pm slide started, it was occurring with no buyers around; a little selling easily gets exaggerated as there are no bids around. I think this was ETF action mostly with single stocks seeing little selling.
As expectation is for a significant move on a triangle 'break’, selling picked up into close as 1236 neared with another unpredictable ‘overnight’ in Europe ahead. It’s quite logical some wouldn’t want to be around in the morning. A range breakout at SPX ~1236 will be likely be induced by a range breakout on the EURO/USD 1.3406 on the downside.
Here, still looking at 1230 to 1220 as last support before drop below 1200, not 'triangle' all are fixated on.
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Morning update:
Deleveraging accelerates in Europe following a poor Spanish auction. Spain sold €3.5bn versus a maximum target of €4bn with a soft 1.5 bid-to-cover while the French auction had a slightly better sale. Spanish and French bonds across the curve plunged and yields posted new record highs (Spain: 2-year: +27bp to 5.5%, 5-year:+29bp to 5.9%, 10-year: +31bp to 6.7%; French: 10-year yield spreads +12bp)
RIFT escalating between France/Germany, Merkel ..” the crisis is “not over” and rejects joint euro bonds. She said that the ECB can’t solve the euro’s weakness and said debt crisis requires political solutions. She also ruled out bank recapitalization and the ECB being able to solve the euro’s woes.