Market Update Risk Assets not in favor

Risk shunned as another European bailout plan is called into question - stocks appear to be heading out the week 180 degrees away from how they started – equities around the world surged on Mon following this Sun’s announcement out of Europe although since then investors are having second thoughts about the efficacy of the plan.  The ECB bond buy plan is having holes poked in it, w/reports suggesting the purchases haven’t been all that substantial past Mon (although the ECB is denying this to Reuters) and investors are worried about the sterilization measures due to come next week.  Meanwhile, there is persistent speculation/fear that the eurozone could wind up breaking apart - the France threat headline from this morning (about how Sarkozy threatened to drop the euro), although since denied, remains one of the top stories of the day.  Merkel’s remarks about Europe being in a “very, very serious” situation aren’t helping either.  While sov debt CDS spreads have been relatively behaved (they are wider today but remain much tighter since last week), there is still chatter about ratings (Fitch was forced to deny speculation that a downgrade of France was coming while Moody’s today said there was an 80% chance that Greece was going to be downgraded in the next few months).  In response to all these headlines/worries, the euro continues to sink, taking out two critical levels today alone (first 1.25 overnight and then 1.24 this morning).  Meanwhile, the very strong Q1 reporting season from mid-Apr is being called into doubt following a handful of disappointing earnings reports this week (CSCO, NVDA, CA, KSS, URBN, JWN, etc).  Finally, the news out of Washington has been a negative for the tape, w/stocks getting hit as each amendment is added to the Dodd bill (the big one today is the Durbin debt card provision).  The SEC is due to hand down new circuit breaker regs this Mon or Tues and there is a lot of worry that the updated rules could be disruptive to HFTs and hurt overall market liquidity.  Technically, people are watching 1120 on the sp500 as the next big level and then 1100 (which was last Fri’s close).  The break in gold from its highs is somewhat encouraging, but keep in mind that the yellow metal remains very strong and right at fresh nominal highs while the other big risk gauge, the EUR-YEN cross, is up 2% today and is breaking to fresh highs (also 2yr TSY yields are off 5bp on the day to 0.77% and hitting multi-week lows).  The G7 apparently held a conf call this morning to discuss the situation in Greece although it doesn’t appear as if any major action was taken.