Is Focus Turning Back To Spain?

Global markets are lower today with Asian selling off overnight and Europe lower this morning. 

The broad weakness in Europe comes amid continued protests in the streets of Madrid.  Spain's prime minister said the country would only seek a bailout if interest rates became too high for the economy.  The ECB has done its part to help keep a lit on yields, but comments like that are never well received in the bond market and Spanish yields rose 24 basis points overnight to hit 6.0% again.

To make matters worse, the Bank of Spain said that GDP will continue to contract in Q3.  Also, the province of Catalonia said it will hold an election to consider secession from Spain.  Ouch.  If Spain gets back in the crosshairs of global markets, one would expect Italy to get thrown in the mix and it would get harder for equities to continue their recent rally.

Asian markets were also lower overnight following the decline in the US yesterday.  Reports are that Japanese auto makers are cutting production in some Chinese factories amid the political turmoil.  China's Shanghai Comp fell below the 2000 level for the first time since early 2009.

In corp news, Jabil Circuit (JBL) became the latest company to issue downside guidance for the coming quarter.  It's stock is down roughly 10% on the news.

Investors are rotating back to defensive groups.  Although the markets are mostly lower today, the utilities are consumer staples sectors are bucking the weakness so far. 

The dollar index is higher again benefiting from weakness in the euro.  Commodities are lower across the board.  Oil prices have fallen back below $90 to $89.25.  Gold prices are pulling back to the $1746 level.  And copper prices are down as well. 

The 10-year yield is showing weakness and has dropped below its 50-day support to 1.63%.  The VIX is moving higher up more than 6% so far.  The VIX spiked higher yesterday and today's move has pushed it above its 50-day average.

Trading comment:   Signs of strains in the credit markets are on the rise today after months of easing angst in the indicators.  We knew that one day we would wake up and the issues that were with us earlier this summer would be back on the front burner.  The question is are those issue back now, or is this just a small flare up.  The S&P 500 has now pulled back roughly 3% from its recent highs to today's lows. If this is just a mild pullback one would expect the market to find support around these levels and bounce.  But if recent bullish sentiment has peaked, it could take a more prolonged and deeper correction to shake the confidence of the newly minted bulls-- as so often happens.