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The start of the week will likely prove to be the worst part as Europe, China, and US concerns will all be front and center.
With no central bank cavalry set to arrive this week, the markets will not be bailed out and must probe new levels to adjust for the added risk premium.
This should see a test of the 1.2000 in the EUR/USD , a test of the 1,325 level in the S&P and a test of the 1.35% on the US 10 year note .
The sequence starts with last Friday’s announcements by Spain that they would not be able to fund themselves at 7.0% 10 year bonds and the asking by the regional government of Valencia for a bailout. The latter has led to Catalonia saying it will considering asking for assistance and newspaper El Pais adding that 4 additional regions may step up for cash as well. Finally, Spain announced that they are downgrading their assessment of the economy with GDP ( explain this ) to -0.4% from -0.3% Q1. Today, CDS for Spain soared to 634 basis points as the 10yr bond interest rate soared to 7.40% and IBEX dropped close to 4%. The Spanish stock market is now rallying back on the announcement that Spain is banning short sales.
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