A step back for financial markets

Last week was a pretty crummy one for financial markets. Continuing concern over intractable budget deficits in certain Eurozone countries,; poor fourth-quarter results from US banks; Chinese moves to remove economic stimulus and slow an again rapidly expanding economy; and, lastly, US President Obama's announcement of the return of a modern version of the Depression-era Glass-Steagall separation of investment banking from commercial banking, all served to strip equity and debt markets of their recent buoyancy.
 
In Australia, the S&P/ASX200 finished the week down 3.0 per cent. In the US equity market the S&P500 was off five per cent.

The reaction was even more pronounced in credit markets and especially in the northern hemisphere.

The Aussie iTraxx CDS index widened by 4.2 per cent, the European Main was out 10.1 per cent and the investment grade CDX index in the US was 15 per cent wider.

Perhaps this is the start of the much anticipated correction or perhaps the markets are being forced to consider what follows the immediate recovery from the GFC.