We had a much expected pullback in stocks today and rise in bonds. Short end lead the advance in bonds, with Euribor and Schatz outperforming the bunds.
Euribor spreads pulled back in the front months, with Jun10-Sep10 reaching as low as 21.5 given it was trading 24s yesterday. However the move up was on much lower volume then the last couple of days, so we shall see if this bounce up has any legs.
Stocks sold off as traders take profits before earnings which started with a pretty bad one for Alcoa. They posted a $500 million loss, which is evidence of the slowing global demand for commodities.
I think this sets the tone for what is to come ahead. The real test will come when banks report next week. It will certainly show how much toxic assets are still on the balance sheets and whether they are moving forward.
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