Keep an eye on the financial sector in the coming days [HEAT]

In Tuesday's US market we had a close just below the psychological important level of 1100 for the S&P, but the sell-off was not that forceful that it causes reason for concern. We still believe in a test of the 1130-level before anything else.

Equities and in more general terms risk sold off yesterday as as once again it was highlighted on the European financial sector and the lack of actual test in the recently published stress test resurfaced.

The article in yesterday’s Wall Street Journal contained no news and unless further information is revealed this theme will soon die out. In September around EUR 80 B sovereign debt is to be auctioned and if one of these auctions does not play out well the theme will gain new life and the sell-off in risk could be rather substantial. But for today and most likely tomorrow look out for the financial sector as this is the one sector within the equity universe that is going to be hit the most – especially banks that in Goldman Sachs test was pointed at as one of the 39 that did not pass the test.

Asian stocks sold off overnight, not as a direct cause of the European sovereign debt issue, but on fear of the outlook for growth in Japan with a stronger JPY. However, when the flight to safety mode is turned off after the European sovereign theme is replaced by another the JPY will most likely drop again, the concern on the outlook for growth in Japan will be less and Asian stock markets will follow the rest of the world’s stock markets higher.

Read the Morning Kickoff.