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So the day that everyone has finally waited for has arrived. At some stage this evening or in the early hours of tomorrow we expect to get a communiqué that will spell out the details of the third plan this year that is designed to be the ultimate back stop to this crisis and save the Eurozone once and for all.

So how will the markets react? We have been stuck in very tight ranges recently that suggest the markets are getting ready for a big move - but will it be to the upside or the downside? To understand that you need to know what the market expects from today's summit: 1, the amount of extra capital for the banks 2, the new size of the EFSF and details on how it will be leveraged and 3, revised haircuts on Greek debt. It's unlikely that the EU will exceed expectations, so the risk is that we are disappointed by the lack of detail, which causes the euro to sell off sharply and drag stocks and other risky assets with it.



· The latest on Europe: Italy's government is on the verge of collapse. Berlusconi needs to pass a package of pension reforms to secure further support from Europe. It may require the ultimate sacrifice from Mr Berlusconi - his resignation - in order to get the package passed. But look on the bright side Silvio, more time for Bunga Bunga parties!

· We also know that the wording of the communiqué is causing some concern in Germany; it wants the ECB to commit to more bond purchases in the interim before the leveraged EFSF comes on board, which the central bank wants to avoid.

· We are getting a sense of how the plan will come together. The EU leaders are likely to lay out the broad brush strokes today, leaving it to their finance ministers to fill in the details like the increase in haircuts on Greek debt and the new size of the EFSF. The final, final deadline is November 3rd- at the next G20 meeting, so this saga may drag out for a while yet.

· Market jitters over Europe aren't showing up in EURUSD, which has been comfortably above 1.3900 for most of the last few days, instead they are being expressed in the Swissie and yen crosses. EURCHF fell below 1.2200 today. This is above the 1.2000 floor put in by the Swiss Central Bank earlier this year, but it is perilously close. Perhaps investors are hard wired to buy Swissie when they get nervous, or maybe investors think it is worth trying to test the SNB for 200 pips, either way, the more that EURCHF falls, the more the risk of SNB intervention.

· Central bank intervention is also relevant for the yen, which remains at 70-year highs versus the dollar at 75.80/90. Finance Minister Azumi said that he's watching the outcome of the European summit later and that he hopes it will help to change the trend in the currency market. Two things strike me about this comment: 1, It doesn't sound like a strong commitment to weakening the yen; 2, Azumi may be putting too much faith in Europe's politicians. We would point out that the Japanese authorities prefer to surprise the market when it intervenes in the yen, so watch out as you don't want to be wrong-footed.

· Stocks have opened broadly neutral this morning after yesterday's rout. Although we think the market's chief focus is Europe, in the absence of other news, the market may have been cheered by a statement from Chinese Premier Wen Jiabao that suggests Beijing may be about to loosen monetary policy, reversing its tightening bias. We don't know the details or time frame for this; however he said that support could be made available for small businesses struggling under the weight of tight lending conditions and high inflation.

· Markets have the attention span of a goldfish, and even without the details of Europe's grand plan, it is searching for new themes. The resurgence of growth in the US and Asia could be one. While Europe struggles, economic signals and corporate earnings from the US have improved dramatically. Although consumer confidence remains in the doldrums if Europe's crisis can come to a neat resolution and as holiday season approaches, confidence levels may pick up. It's also worth noting we have some optimal conditions for growth: the Fed is on hold and remains committed to reducing mortgage rates. Added to this China may start to ease policy soon and Australian inflation pressures moderated in the third quarter, reducing the need for any further tightening there, so could we be in for a bright end to the year? Watch this space.

Best Regards,

Kathleen Brooks| Research Director UK EMEA |

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