Ahead of the open, (9-11)

..no more Bunga Bunga

Much to this trader’s chagrin, firstly watching a muted reaction to Berlusconi’s exit, followed by a late rally in the US markets has reversed dramatically at the European market open. If you looked at 10yr bonds following word of resignation, you’d see the dislocation. Call it an early sign the US markets were naïve and wrong as optimism has dissipated quickly.

Although, it was ‘yes’ vote on the Italian 2010 budget, it was still a ‘no’ vote as it’s forcing Berlusconi to step down. “...would cause yield surge and risk asset sale.”. As discussed, PM’s exit = more uncertainty for Eurozone and this morning markets realize this with yields skyrocketing to >7.40% with ECB intervening after margin rates were first raised in France. Deposit charges on 10yr went to 11.65% from 6.65% on the LCH clearing house arm.

Away from the Armageddon in Europe, which now enters a new ‘unknown’ phase, the US markets ironically tested the ~1275 resistance area and now will have an even tougher time to get over it in the future. Start looking at supports noted this weekend. Total denial by markets recently may reach a boiling point.