EUROPEAN OPENING

Over the weekend, Italy's PM Monti proposed and passed his austerity package which amounts to a savings of $40 billion. For perspective, Italy needs to rollover (refi) $400 billion in debt over the next 12 months, and has $1.9 trillion in debt, but the European bond market took the step as being in the right direction and the closely watched Italian 10 year BTP yield dropped significantly to 6.18% in early trading while German bond yields rose (presumable that money moving in to the stock market from the safe haven trade.)

In the meantime, last week the coordinated Central Bank action was supposed to gain the bank's confidence in the EU, but the next day they were still parking excess cash at the ECB for a .50% interest rate rather then lend it, especially in overnight transactions to other banks. That trend persists this week thus far with banks depositing an additional $20 billion with the ECB and the ECB's lending window saw weaker banks (due to the liquidity freeze) still increasing their borrowing from the ECB with another $7 billion. The cash deposited at the ECB is $333 billion which is $50 billion shy of the all time high reached at June 2010 when Greece first failed. Clearly the banks know the liquidity system better then anyone else and they are still very jittery and growing more so.

As for today's Merkel Sarkozy meeting, the market is looking for agreement ahead of Friday's summit, while they share many of the same views 9thus the name Mer-Kozy) the sticking point remains Germany's hard line toward a fiscal union that would have EU states surrender their budgets to a EU authority which would have veto powers over the sovereign state's finances/budgets.

In the UK, the EEF cut GDP forecasts in half to 1% for 2012, while UK banks start to also feel the liquidity squeeze and are paying higher amounts to borrow money.

In to the opening, ES looks like it's seeing it's first negative divergence in 3C since the overnight session began.

The red vertical line is the EU open.

We'll be looking toward the credit indicators and risk basket shortly.