Merkel has finished up her speech to the German Parliament where she seems to have broad support in going forward with a leveraging of the EFSF in return for capping the German exposure at 221b euros that was agreed to back on July 21st. With respect to the Greek debt restructuring, a Greek newspaper is saying the 50% haircut will take the form of a debt exchange for 30 yr bonds totaling 35% of every 100 euros of debt owned and a 15% payment in cash. Bottom line though for this entire crisis still comes down to Italy and Spain and their ability to grow their economy and cut their debt over the next few years. The EU is still awaiting a letter today specifically from Italian officials on how they plan to do so. Italian business confidence was in line with expectations but fell to the lowest level since Jan ’10. The first ECB 12 month lending facility since it was reintroduced was open today and European banks borrowed 56.9b euros, less than the 70b that was expected. In Asia, comments from Chinese Premier Wen on policy are being taken by some that they will move to ease conditions if need be over the next 6 months. Copper is rising to a one month high in response and the Shanghai index rallied. In the US, after sharp declines last week, refi’s rose 4.4% and purchases were up by 6.4%. II: Bulls 40.0 v 35.8 Bears 37.9 v 41.0
