Market Update 1:37pm ;Geithner will press Europe to conduct stress tests of its banks $xlf

Market Update – despite the weakness in risk assets, newsflow and activity are both on the quiet side.  Stocks are getting a mild lift higher as European markets close for the day but there isn’t a lot of real buying occurring.  The Spain bank failure from the weekend continues to reverberate and is reintroducing a new dimension to the European credit crunch (for the last few weeks, the focus on been on sovereign debt….but the events in Spain this weekend is reviving worries of ’09 concerning European banks).  Not only is the European problem escalating daily, but investors are increasingly skeptical of the region’s ability to put together an adequate response (Germany’s political coalition was weakened further w/a key resignation this morning while the country is talking about rolling out additional unilateral short sale restrictions).  Meanwhile, there isn’t a lot the US Fed can do (Fed’s Bullard is the latest official to comment that the current US dollar swap lines is about all the Fed can do to help for now).  Geithner will press Europe to conduct stress tests of its banks during his trip there later this week (per CNBC) but its not clear whether the ECB or each individual country will follow through on the suggestion.  Geopolitical tensions emanating from the Korean peninsula aren’t helping the very fragile tape (although NBC says earlier reports that NK had placed its troops on a heightened state of alert aren’t accurate).  Despite some activity at the open, flows have quieted meaningfully; on a technical basis, we held the Feb low levels well this morning (low/mid 1040s); the sp500 futures have made a nice recovery off the worst levels (from 1036 this morning to 1056 as of 12:05pm).  Selling pressure is across the board and broad; correlations remain high across risk assets (has been the case for the last few weeks).  The focus remains very macro based (more ETF driven w/a lot of hedging) w/not much single stock activity occurring.  Not a ton of very aggressive selling occurring; very much a buyers strike as we head into noon.  The very light calendar this week isn’t helping conviction levels – investors interested in how some of the May eco data points came in and we don’t hear about this until next week (auto/retail sales, jobs, etc).  The fact that we are heading into a long weekend (and one in which the US will be closed Mon but where most of the rest of the world will still be trading) isn’t helping risk appetites.  The strength in GS is receiving a lot of attention (see below for an update) and is one of the few bright spots being pointed to in an otherwise ugly tape