Banks leading market weakness/Payrolls

Lower bank stocks in Europe (sovereign and funding concerns) and the US (another round of mortgage lawsuits) are what’s leading broader markets lower. Also, Asian market weakness mostly across the board was not a good lead in to the European opening. Greek short term yields are rising to new record highs. The 1 yr yield in particular is up by 600+bps to almost 68%. The EU/IMF review of Greece’s books is taking a 10 day rest as Greece further prepares its 2012 budget. The initial news was interpreted as a problem with the review but that has been denied. Italian and Spanish yields are also moving higher again and Italian 5 yr CDS is rising to a record high. After jumping to the highest level since Dec yesterday, the euro basis swap is down a touch but 3 month Euribor/OIS spread is jumping almost 4 bps. US$ 3 month LIBOR rose for a 28th straight day. The Swiss franc is at multi week highs vs the US$ and euro on the safety trade. Aug US Payrolls are expected to total 68k, 95k of which is from the private sector. Considering the market turmoil in Aug and the likely rational response on the part of employer’s to sit on their hands, there is little reason to think there will be an upside surprise of substance and it will be more a matter of the degree of softness relative to what is needed to lower the unemployment rate on a sustainable basis.

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