Credit Crunch Moves Across The Pond

This morning's market open is a reminder that after a 3-day rally, headline risk remains. News that France's biggest bank (BNP Paribas) suspended withdrawals from three of its funds roiled our markets at the open. These funds, valued at $2.1 billion, cannot value their holdings currently due to the turmoil in the U.S. credit markets.

Also, AIG reported earnings and said that mortgage delinquencies are spreading, and that they will soon spread beyond subprime to prime. All of the above has moved the fed funds futures to now predict fully a 100% chance of a rate cut at the next FOMC meeting (Sept. 18). Didn't I just finish saying that the Fed was late to the party?

Bond yields are moving lower amid the flight-to-quality, with the 10-year yield back down to 4.78%. And there appears to be additional unwinding of the Yen carry trade given the continued rise in the Yen. But the ECB, and to a smaller extend the Fed, are injecting reserves into the system as we speak.

Oil is lower again this morning, around $71.35. This could help sentiment, which seems to be improving as of this writing, as the Nazz is clawing its way back to positive territory after being down -1.75% at the open. This is a testament to the furhter relative outperformance of growth stocks.