Equities (SPY) look to be in a process of correction, and with all of the uncertainty surrounding earnings, and European progress, a move back to the trend line looks warranted. Yields of both Italian and Spanish sovereigns have felt the brunt of immaterial European rhetoric leaving markets in seemingly identical positions week after week. Although there was a concerted effort of easing at the end of last week from China, BOE, and ECB, this kind of relief is only a slice of the overall pie.
Continued idleness by the European council with respect to direct injection into Spanish banks, clarifying ESFS/ESM flexibility in stabilizing markets such as Italy, and progression towards a supervision mechanism will only keep markets volatile. A consequence of this behavior has led to an Iron Curtain of sorts dividing yields of both Northern and Southern regions. As banks look to draw their lines, the Northern region is experiencing a move to negative yields, while Southern regions are reaching crisis level yields, this only looks to heighten the strife. On an earnings level, analysts have gradually been revising downwards their estimates in preceding weeks. This action looks to provide increased probabilities that companies surprise to the upside. Overall, a correction in equities looks to be in the mix, but after the head and shoulders bottom seen a few weeks ago, look for a move to 1400 along the trend line.
Aside from what has been said above about the Euro (FXE), the dollar (UUP) seems to be developing a theme of its own. Fed officials have come out recently suggesting that more expansionary measures should be implemented. After easing took place in other countries last week and poor employment numbers have been commonplace lately, the probabilities of Fed action have been heightened. Wall Street has revised its likelihood
