"Euribor spreads have fallen from a high of 89 bp on 23 September to 74 bp currently. We have been suggesting in our recent notes that MXASJ did not bottom in 2008 until TED spreads (proxy for contagion to the banking system) peaked. So it is rather encouraging to see Euribor spreads (the European equivalent of TED spreads) fall from a high of 89 bp on 23 September to 74 bp currently. If this fall in Euribor spreads sustains, we estimate further upside of around 20% as our year-end target for MXASJ is 575. We continue to favour the two most under-owned markets of Korea and Taiwan where net foreign selling over August and September was 0.5% and 1.3% of market capitalisation, respectively (see Figures 2 and 3 under Focus charts)."

Eoin Treacy's view Thank you for this excerpt highlighting the pullback posted by the Euro 3-month Libor - Euro 3-month yield spread over the last two weeks. As a measure of the perception of risk in the Eurozone's banking sector a declining premium of bank debt over that of governments is a positive.

The Euro Stoxx Banks Index remains quite overextended relative to the 200-day MA and has posted three high reaction lows since September. A sustained move below 100 would now be required to question further scope for additional higher to lateral ranging and a further closing of the oversold condition relative to the MA.