Stocks dropped again yesterday, as traders continue to take profits. The selling has been on very low volume so it is hard to say whether it is merely profit taking or a change in trend. But the fact that the market sold of in the face of some good news across all regions raises a few red flags. A few weeks ago, these would've been bonafide green shoots. But as we said last week, the market now needs to see more than just second-derivative green shoots. It needs to see actual green stalks. And so far there really haven't been any.
Spread wise, it is alarming me on how high the short sterling calendar spreads are reaching. 3 month Jun10-Sep10 spreads are almost 50bp wide, as is Sep10-Dec10. They are pricing in a series of rate hikes next year, but to me it seems like the spreads are a bit too wide, and that there will be some sort of serious correction soon.
We have UK unemployment data and BoE minutes as well as CPI from the states for news today, so far Bonds are higher and stocks are heading lower.
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