Market Update – stocks sink into the red after failing at the 200day MA and following a Moody’s downgrade of Greece; a lot of headlines today but not a ton of incremental news; technical range still unresolved, keeping real money on the sidelines; catalyst-light week until the Spanish debt auctions, S&P rebalance, and expiration all Thurs/Fri. Stocks were strong out of the gate this morning, keying off the encouraging Fri close in the US and a strong European session overnight. There were two major themes that dominated the headlines today. On the sovereign credit front, there were additional reports overnight that Spain was preparing to seek emergency financing assistance from the new EU SPV bailout fund (Spanish and European officials vehemently denied this talk, just as they did on Thurs and Fri when the chatte last hit the tape). A separate DJ article discussed how Spanish banks are increasingly having difficulties accessing the international capital markets. In addition to Spain, Moody’s came out today (at ~1:08pmET) and downgraded Greece. The Moody's action was taken in stride by the markets and it didn’t seem to have a major impact on the tape as Moody’s already had Greece on review for a d/g since Apr 22 and following today’s action is now inline more-or-less w/S&P (both S&P and Moody’s have Greece at the highest junk rating while Fitch remains @ BBB-, which is lowest IG rung). Greece came out late in the day and said the Moody’s downgrade ignored recent progress made on the budget front while the FT said Chinese funds are going to announce on Tues investments in some Greek projects. Away from sovereign debt stories, the US financial reform reconciliation process continues to move forward, w/a goal of achieving a final bill by the Jul 4 holidays. An overnight report in the FT stated that US banks had “lost the swaps fight” as Volcker backed the Lincoln derivatives language, but Volcker clarified his views in a CNBC interview (he doesn’t want swaps desks spun out of commercial banks) and Reuters is reporting that Lincoln is seeking to tweak her amendment to achieve more backing in the House & Senate (Lincoln apparently would permit banks to maintain their swaps desks in independently capitalized subsidiaries and would provide two years to introduce the new changes). Cutting through all the noise, there really wasn’t a ton of incremental on the Volcker/Lincoln front (press reports have been signaling for weeks that the Lincoln amendment would be tweaked and that an outright spin of derivatives operations was unlikely). Trading on the desk was very quiet w/neither buyers or sellers having much conviction. Technicals dominate – we failed again at the 200day MA (1106 was the peak today on sp500 cash vs the 200day MA at 1108) but failed to pick up much momentum on the downside. The tone of the tape has changed for the better in the last few days and selling pressure appears exhausted, but there isn’t a lot of real high-conviction buy demand around either. Until we resolve out technical range in either direction (breaking down below 1040-1050 or above ~1110), investors won’t make a major commitment.
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