Risk Off Monday

The US dollar is firm against all the major and emerging market currencies.  Equity markets are lower, giving back all of Friday's gains and more.  The euro has dropped 1% and the next level of support is seen near $1.3200. 

Sterling is heavier, though the gilt market's attraction as a safe haven was underscored by the UK PM Cameron's decision not to play ball.  Against the dollar, sterling is holding support near $1.5525, with better support seen $1.5450-70.   The euro is slipping through the GBP0.8500 area and is at its lowest level since March. 

The dollar is trading in narrow, but slightly wider range against the yen--about 37 tick range.  Resistance is seen in the JPY78.00-10 area and although the greenback is at a one week high against the yen, it is difficult to get excited about it and yen crosses are driven by the other leg, whatever that may be. 

The somewhat smaller trade surplus and softer Chinese data did the Australian dollar no favors.  It lost about 1%, but is remains largely within last Friday's range.  The pre-weekend low was $1.0048. 

Friday's price action, which included stronger equities and a recovery in the foreign currencies, has been reversed.  Many are anticipate S&P may shortly lower the ratings of euro zone countries and Moody's joined the S&P today warning that it too is putting the entire region under review, which will be completed by the end of Q1 2012.  

In France, Sarkozy's Socialist challenger indicated that if he were to be elected he would want to renegotiate the summit's agreement and the fiscal compact.  A Reuters survey found 11 of 13 respondents expect France to lose its triple A rating within 3-months. 

Italy's bill auction was fairly well received all told.  The yield on the 1-year bills was about 13 bp below last month's rate and the bid to cover was only slightly less at just below 2%.  Several of the largest unions are on a three hour strike today.    The Netherlands sold 3.5 month T-bills at a negative yield (-0.007%).  It sold 6-month bills with an ever so slightly positive yield (0.009%).