Spain and Italy leading us lower

While the morning news flow is quiet, weakness in overseas stock markets is spilling over into the S&P futures. Of note in Europe as we await details of the memorandum of understanding that will lay out the details of the Spanish bank bailout, the Spanish IBEX stock index is falling to a 6 week low and following is the Italian MIB index which is trading at a 5 week low. Spain’s 10 yr yield is now higher by 20 bps to 7.21% which would be a new closing record high in the post euro world. The last move higher at around 8:15am was in response to the story that Valencia, Spain’s 3rd largest city, will tap Spain’s financing facility that can be used by regional govt’s. Also and while said yesterday, these comments from the Spanish Budget Minister aren’t helping, “there is no money in the public coffers. There’s no money to pay for public services.” In addition, it’s still uncertain what obligations the German’s will place on Spain in the form of sovereign guarantees for the equity injections that will go into Spanish banks. While the markets initially cheered the separation between banks and the home government when the 100b euro bailout was first announced, Germany said not so fast.

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