We had a generally risk on type of market overnight with equities around the globe rallying, and those in Europe rallying quite strongly. We saw commodities also climbing higher with gold reclaiming the $1670 level.

For more on equities, see today's Technical Update: S&P 500 Anchored to Slightly Bearish Channel; Remains in Consolidation

While equities were higher in Europe, the euro traded mainly sideways actually giving up about 50 pips to the dollar.

Some Optimism Regarding Euro Crisis?

Coming out of the weekend there was lots of attention paid to the fact that other countries were pressuring European leaders to step up their efforts to contain their crisis. One of the main ideas coming from the US and others was that Europe should expand the size of its EFSF bailout facility to as much as €2 trillion. Germany has so far beat back that speculation, and while we saw a bit of a move towards risk, we know that European politicians solution to the crisis will happen in a slow motion type of way.

From Reuters: Some officials have said that plans are underway to boost the size of a regional bailout fund to cut Greece's debts and recapitalize banks, although others have underlined they are at a very early stage andGermany has said there are no plans to increase the size of the fund.

Given so much uncertainty at the moment, there is room for both pessimism and optimism. The optimists have taken the forefront on hopes that we could see European politicians getting to grips with the current situation over the coming weeks, said Keith Bowman, analyst at Hargreaves Lansdown.

But there are still a lot of concerns. Investors remain skeptical.

Voting Through the EFSF July 21st Changes

Europeans are still trying to push through parliaments the original July 21 changes to the EFSF, which includes allowing it to buy government bonds in the secondary market, offer lines of credit to struggling sovereigns, as well as help recapitalize banks. Germany and Austria vote on those changes later this week, and Finland - which has been reluctant to offer its funds as part of the Greek bailout package without securing collateral - votes on the EFSF changes on Wednesday. Some smaller states Slovenia and Cyprus hold votes on the changes today.

NEXT STEPS via Financial Times

Sept 27 Greek parliament votes on unpopular new property tax
Sept 28 Finnish parliament votes on new powers for the European financial stability facility, the eurozone bail-out fund
Sept 29 German parliament due to ratify the EFSF, but will Chancellor Angel Merkel win over her coalition partners?
Oct 3 Eurozone finance ministers meet in Luxembourg
Oct 11 Slovak parliament votes on the EFSF, the last eurozone member to do so
Oct 13 Eurozone ministers could meet again to sign off on a Greek aid tranche
Oct 14 G20 finance ministers meet in Paris
Mid-Oct Greece starts to run out of money
Oct 17-18 Herman Van Rompuy, European Council, president, will make proposals on fiscal union at an EU summit
Nov 3-4 G20 summit in Cannes
Dec Talks begin on next aide tranche for Athens
Dec 9 EU summit at which leaders to discuss increasing EFSF at summit and fiscal union
Early 2012 German parliament votes on a permanent bail-out fund to replace the EFSF

Greece in Spotlight Today

Another key for the European situation will be a vote in the Greek Parliament on property taxes which is needed for Greece to secure its next installment of aid from the EU/IMF inspectors. There is also a call between German Chancellor Angela Merkel and Greek Prime Minister George Papandreou that may make headlines.

Italy, Spain Offering Up Debt

Something else keep an eye on will be that sales by Italy and Spain this week.

From Bloomberg: Italy and Spain sold 17.7 billion euros ($23.9 billion) of debt and their bonds rose after the sale even as both countries had to pay more to borrow than a month ago.

Spain's auction was a very good result and in the near term, assuming Greece receives its disbursement, we are in for at least a short period of relatively less volatile markets, said Matteo Regesta, senior interest-rate strategist in London at BNP Paribas SA, referring to Greece's next bailout payment. The yield was a little bit up, but nevertheless the take-up was significant and the yield pick-up not massive.

That helped the risk-on tone in European markets today as well.

While equities, commodities, and commodity linked currencies were higher we would still be cautious around further gains for the euro as the market likely wants to sell the euro on rallies and the $1.36 level does present a situation to do so.

Nick Nasad
Chief Market Analyst