Corrective Pressures Grip the Start of the Week

The US dollar is enjoying a firmer tone, but has remained confined to its pre-weekend trading ranges. The euro is the hardest hit and although Nobel prize-winning economist Stiglitz pressed his pessimistic outlook for the euro zone and especially Spain, the market reaction outside of foreign exchange has been quite limited.

Talk of a hostile bid for a US pharmaceutical company for an estimated $18.5 bln might be a more important factor. That said, the Swiss franc and yen are holding in the best, which may speak to risk-aversion in the foreign exchange market. Emerging market currencies are also lower. There may be some disappointment that Dimla Rousseff’s victory was by an insufficient margin to prevent a run-off round at the end of the month. This could see the high flying Brazil real ease back after a strong pre-election advance.

Despite Stiglitiz comments about the "death spiral" for the euro and the pessimistic outlook for Spain and the Wall Street Journal article about the local debt in Spain, Spanish bonds have rallied today. The 10-year yield is off 3 bp, the same as Germany. Global equity markets are lower.