The market started the day with green trading, where Asian shares advanced and high yielding currencies and especially the euro edged higher on the sensed consensus among European leaders after the Sunday summit and that they are closer to a decision to be announced in Wednesday's summit.
We do not have final agreements yet, but the leaders have reflected their confidence in the Wednesday deadline and that they are bridging a wide gap between them, as French President Sarkozy said a broad agreement is taking shape.
The leaders endorsed the finance ministers' decision to hand Greece the EU part of the 8 billion tranche despite its worse than projected finances and progress. The leaders in the summit have moved closer towards the available options for banks, saying that they are so far talking within the broad lines set by finance ministers which markets expect hover around the compulsory raise of core capital ratios for banks by mid next year to ensure their strength, which so far does not seem much support and might pressure the banking sector further lower.
On the EFSF, final details are not clear of how to expand the firepower of the 440 billion euros facility, yet for now the reports say the role of the ECB has been ruled out as a main financier, which means that France surrendered to the German calls. The options range now between two, creating a special purpose vehicle to access private sector funds to fuel the bailouts, and other options include securing the new issued debt.
Investors also await news on Greece and the second bailout hammered in July and whether the private sector will indeed take a 50-60% haircut on their Greek holdings, while also the means to protect Italy and Spain are still not clear.