European stocks responded to the Merkel/Sarkozy get together with an immediate sale but have since mostly crawled its way back and the euro is trading at a 3 week high vs the US$. The financial transaction tax is of course causing a lot of head scratching (it’s downright idiotic) just as many parts of the region are capital starved and European bank balance sheets are stretched. German CDS is falling to a 1 1/2 week low and 10 yr bund yields are lower as the prospect for a eurobond, which would dilute the financial strength of Germany, was put off for now. French CDS is also narrower. The 10 yr UK gilt yield is falling to a new low after Jobless Claims there had the biggest increase since May ’09. In Asia, the Chinese yuan backed off a touch from its record high. In the US, the MBA said that purchase apps are still showing no benefit from the continued drop in mortgage rates as they fell 9.1% to the lowest since July ’10 but refi’s bounced again by 8% to the most since Nov. From a contrarian standpoint, the weekly Investors Intelligence sentiment figures were not encouraging for those thinking we’ve bottomed. Bulls were down just 1.1 pts to 46.2 while Bears were unchanged at 23.7.
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