The markets puked this morning as the unease around Italy infected investor sentiment; the S&P stock index closed almost 2% lower.

Any positive sentiment due to earnings expectations was overridden by the fear of the unknown around the European sovereign situation.

Treasury bonds rallied hard and as predicted, the yield on the 10 year breached the 3% threshold in a classic flight-quality by investors.

The yield on the 5 year Treasury bond closed below 1.5% (bond prices and yields move in opposite directions).

The Euro slumped to close at 1.4 against the U.S. dollar; the Euro has further room to fall before year-end.

Corporate earnings for brick-and-mortar industries are expected to be good for the most part but investor sentiment is turning increasingly panicky.

Investors are beginning to focus on downward revisions for projected earnings i.e. earnings may be good this quarter but are they sustainable going forward?

Additionally bank and financial earnings that start later in the week are likely to be ugly.

With capital costs going up and regulatory constraints that much more stringent, banks are going to make less and less money making loans.

Ironically, trading will remain the one area where banks retain the potential to make money (and that is only if they have good traders).

The new operating environment could force banks to take more risk, as opposed to less, in a bid to remain profitable.

Corporate credit spreads blew out wider with even high-quality recent new bond issues trading 5-10 basis points wider.

Liquidity is slowly beginning to resemble 2008.

Yankee (foreign issuers that issue USD denominated paper) banks and corporate names were hit particularly hard.

Corporate names with peripheral European exposure came under particular stress; spreads for Enel widened 30-60 bps, Telefonica spreads widened 15 bps, and Iberdrola spreads widened 30 bps.

Off-the-run corporate cash bonds were essentially bid-less.

The fallout from the scandal roiling Rupert Murdoch's News Corporation continues with some doubting News Corporation's ability to push through with its bid for television broadcaster BSkyB.

Interestingly, Prince Al Waleed bin Talal of Saudi Arabia, the second largest shareholder of News Corporation after the Murdoch family continues to stand firmly behind Murdoch.

There are whispers in some quarters that News Corporation's Fox News went too far in its coverage of the "birther" movement and President Obama.

History has shown that no entity is a match for the assets, both seen and unseen, that a state can bring to bear.

Trading will likely remain very choppy this week with either a rally or a sell-off likely to be pronounced given poor liquidity.