Market Update: Large Clouds Gathering over the Economy.;The US labor market continues to show no signs of improving

• Market Update – the pattern this week remains pretty consistent – a brief bout of covering at the open only to give way to more selling pressure.  Fundamentally, the overriding theme to this tape and the prime catalyst behind the weakness has been the large clouds gathering over the economy.
• Data points throughout the month of June have missed expectations pretty consistently, esp. on the housing front (inc. today’s pending home sales number, which plunged 30% M/M). 
• China’s PMI readings have missed consensus now for two consecutive months while the US ISM today fell short of expectations (while major eco activity gauges remain above the expansionary 50 threshold, momentum has def. shifted towards the downside). 
• The US labor market continues to show no signs of improving (claims are still stubbornly high while the private sector, judging by last month’s May reading and the ADP number out Wed, hasn’t been adding to payrolls) and the housing market is experiencing a steep falloff in the last couple months (even the record low mortgage rates hasn’t done much to stimulate new sales – see yesterday’s weekly MBA update).  The auto sales figures out today (F just hit @ 12pmET), while not disastrous, are coming in under the St view. 
• The “double dip” crowd continues to pick up more adherents and newsflow/market action lately is doing nothing to discredit this view (if the 2yr TSY strength signaled fear + expectations that the Fed would keep rates at 0% for a long time, the strength in 10s is more a forecast of the market’s view on growth; the collapse of the 2-10 spread is an ominous predictor for growth a couple qtrs out).
• The Economic Condom has been taken off  “safety nets” of fiscal and monetary policy as being withdrawn just as the economy is experiencing some hiccups – the G20 statement over the weekend signaled to the world that governments will stress fiscal austerity while the ECB this week wrapped up its covered bond purchases and allowed its 12-month tender to expire. 
• In the US, a couple Fed officials in recent days have said that current conditions don’t warrant a resumption in asset purchases (and yields have been crashing to near-record lows anyway, so its not clear what any further buys will do).
• Interestingly today, the source of the weakness behind US stocks doesn’t seem to be Europe – the euro is VERY strong today (up nearly 2% on the day) despite continued sovereign headlines (like Moody’s putting Spain on watch yesterday and downgrading a bunch of Spanish regions this morning).  Also getting attention - US corp credit hasn’t widened to the same extent as stocks have declined (IG is only out ~5bp from their Tues close and is out only 2bp today).