The latest news from the Euro zone shows some slow progress towards the most critical aspect of the whole Greek tragedy: stemming contagion from big write offs at Euro banks. As the Euro zone accepts that Greece must default in one way, shape, or form, banks are expected to take it on the chin. Containing that damage is crucial for the world economy. As we write this, Euro zone leaders are at a working dinner, attempting to find grounds for agreement. The dinner guests probably don’t include the two Italian lawmakers that went to blows yesterday on the Parliament floor over the generous pension system in Italy.
With every step towards a resolution, the US stock market shows some underlying bullishness. Today’s rally was goosed by good earnings, but the backdrop of progress in the Euro zone, however slender, certainly helped. Also contributing to the ebullient mood were signals from China and India that their monetary tightening policies may be near an end. Of course, what’s good for stocks is not so good for Treasuries, which declined in price today. The month of October has been a rough one for Treasury owners, as that market has racked up losses from the very low interest rates that prevailed in September.