With markets that are no longer oversold (now more neutral) and sentiment numbers that are mixed (rather than the contrarian standpoint of bearish) as measured by the II and AAII data, the markets don’t have these technical crutches to stand on right now. This makes them very vulnerable to anything negative as it becomes more clear that we are now in a bear market as the violence of these moves typically happen only in one. European markets started to roll over at around 5am led by banks due to a few reasons. In no particular order, the WSJ highlighted the growing focus of the Fed on the US divisions of European banks, the ECB’s Nowotny said he fears an economic replay of Japan, “a long term period of limited economic growth combined with low inflation rates,” a Swedish regulatory official said while it’s not that serious of a concern right now, “it won’t take much for the interbank market to collapse” and banks should prepare. While 3 mo Euribor and Euro 3 mo LIBOR have been stable, the demand for $’s is becoming clearly evident in US$ 3 mo LIBOR as it rose for the 18th straight day to the highest since April. Also, Greek 2 yr yields are at a 4 week highs as its being reported that now Austria wants collateral backing from Greece for any loan given to them as part of the July 21st bailout package. This follows Finland but Finland had their agreement in place when the bailout was first announced
