Trader Talk

Money Flees Euro for Dollar, Gold

Morning trading: money is fleeing the euro and going into the U.S. dollar, as well as gold. Gold (priced in both euros and dollars) is up and near new highs.

There's obviously serious selling pressure in Europe that is spilling into the U.S. market; remember U.S. stocks rallied on Friday once the European markets closed at 11:30am ET.

The problem is, the notable rally we had in the last half hour on Friday likely blew out the last remaining shorts left; with fewer shorts left to cover it will be harder to bounce much today unless some miracle comes out of Europe. Italy has changed the game.

Bank earnings begin this Thursday with JPMorgan , then Citigroup on Friday. It will likely be a very mixed picture. Early thoughts on the banks:

1) The good news: expectations are low — very low. You can see it in valuations: many are trading below tangible book value.

Still, don't make too much of that: this is an unloved group and despite a few outlying cheerleaders nobody likes bank stocks.

2) Regulatory/political environment: murky but improving. There are finally rules on debit interchange fees, and they were not as bad as expected; bank stocks rallied on the news.

3) Fundamentals: mixed. Weak job growth means: 1) weak personal and mortgage loan growth (commercial will likely be a bit better) and 2) compressed net interest margins (rates will remain low), both of which mean potentially lower earnings for banks.

Still, there's been some improvement in fundamentals. Credit continues to improve: nonperforming assets are stable and net chargeoffs seem to have peaked last year. Reserve levels are high, and will likely drop later this year; it's highly unlikely they will increase.

4) Trading: mostly weaker than Q1. Equity volumes are horrible; fixed income was strong in Q1 but will likely not be as strong as Q2.

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