It looks like the EU finance ministers won't be pushed into extending the EFSF any time soon. The first day of their meeting yesterday suggested that their immediate concern is to change the terms of the July agreement to get private sector bond holders to agree haircuts on their Greek bond holdings. Now EU fin mins wants to extend that haircut from 21% to 50-60%, according to some reports. These fuelled heavy losses in Asian markets and European indices are also lower at the open. Interestingly, the euro and other risky currencies have clawed back some gains as FX markets take a breather, but they still look vulnerable.


·         Economic data is fairly thin on the ground today so markets are likely to be incredibly volatile during the session. Europe is still dominating things and the second day of the EU finance ministers' meeting is likely to keep markets lively.

·         President of the Eurogroup Juncker hinted that discussion on the EFSF would start today, but that there would be no extra burden on the German tax payer.

·         The vote on whether to release the next tranche of Greek funds has been delayed until 17-18 October at the next EU leaders' meeting. This comes even though Greece starts to run out of money from next week and after an impassioned plea for help from the Greek PM and finance minister last week.

·         Another day, another round of confusing messages from the EU and a split could be emerging within the currency bloc. Apparently the Germans are leading the push for larger haircuts, while the Spanish Finance Minister said that investors won't be forced into accepting losses on their Greek debt holdings...

·         Dutch fin min Reynders was speaking this morning about Dexia - the troubled Belgian/ Franco bank. He said that the government will act if help is needed. He also said he wants implementation of the Greek rescue package, since what is good for Greece is good for Dexia.

·         UK PM Cameron says that the euro region should move towards more cooperation and that the Greek crisis needs to be resolved quickly.

·         But there was some progress at this meeting. There seems to be a complex solution to Finland's request for collateral in return for more loans to Greece. The Dutch fin min came out today and said Holland is unlikely to opt for Greek collateral.

·         Spanish unemployment data for September was worse than expected, rising 95,800 on the month, larger than the 42,100 expected. The unemployment rate in Spain remains at a stubborn 20.83%. Salgado added that the unemployment situation won't change the fiscal consolidation plans.

·         The S&P revised down its growth expectations for the Eurozone. It now expects GDP data to be 1.1% in 2012 due to deteriorating business sentiment in European markets. Its previous estimate was 1.5%. Its expectations for UK growth are also lower for next year at 1.7% from 1.8%.  This is the second downward revision to its EZ growth forecasts.

·         On balance, data and news flow so far today is fairly negative for risk.

Market action:

·         Stocks have opened lower for the third consecutive session, although price action in the FX market has been more mixed.

·         The dollar is still dominating things, it has been choppy, but is back at the top of its range at 79.65, above the 79.40 Fib resistance in the dollar index. From a technical perspective there is still plenty more upside to come for the dollar.

·         EURUSD looks weak above 1.3200 so far today. It is starting to look oversold on a daily basis, so we could see some congestion around the 1.3000 zone, but we expect any bouts of strength to be used as selling opportunities. Resistance lies at 1.3230.

·         GBPUSD is also skirting along the bottom. The next support level to watch is 1.5340 - the Sept 21 low. We expect it to move in line with the euro.

·         Gold is trading in a range at the moment between $1,614 and $1,687 -  two key Fib levels.

Best Regards,

Kathleen Brooks| Research Director UK EMEA |

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