Merkel-Sarkozy Set the Tone

The obvious fulcrum event in the market today is the Mer-Kozy meeting, which usually amounts to nothing more then a sugar high as even their best laid plans get nowhere in front of a full Euro-zone conference.

Overnight the Euro traded below $1.27 around 1.2666 before moving up on the Merkozy summit/meeting/waste of time. Currently the Euro has lost momentum and is around $1.2753.

Overnight the Euro hits new lows going back more then a year.

The meeting is addressing everything from closer monetary ties, a subject the UK has objected to without specific measures being included which are unlikely, to unemployment which is a huge issue for Sarkozy who faces a reelection bid in 4 months with French unemployment at 12 year highs. The problem of unemployment across the Euro-zone is being considered as harsh austerity measures have predictably caused a greater unemployment problem.

The Tobin Tax issue is also being discussed, which is a tax on financial transactions and this is the one the UK is resisting as the "City" in London (Financial district) would be hit hard by the tax. The UK position is, unless the tax is applied globally, the UK will Veto any EU ONLY version.

Sarkozy may try to move forward in initiating the tax in France regardless of the EU outcome.

An announcement is expected around 1:30 p.m.

China is set to look for 7% growth in 2012, a percentage lower (8%) that has been the standard for the last 7 years, we were right when we speculated there's big trouble in China upon seeing commodity prices underperform.

As for the US where many are thinking the new 2012 F_O_M_C_ doves that came in to voting rotation (9/10) will initiate a new round of QE shortly, may have seen a set back as the F_E_D_S Bullard has said they probably would not due to encouraging US labour conditions. QE talk was centered around the purchase of MBS, so the QE fans got another disappointment when Dudley said that the US taxpayer and Mortgage Bond investors should shoulder the burden of mortgage principal reductions. Interesting developments there.

Earnings season also kicks off in the US with Alcoa releasing after the bell.

Lastly back t Europe. the almost daily ECB deposit facility news is back with the ECB seeing a new all time high at $464 billion Euros. This is nearly all of the ECB's LTRO 3 year loan money that has come right bak to the ECB on a negative carry trade.

I wouldn't expect too much from the market or take anything too seriously until the conclusion of the Mer-Kozy meeting. Then I would pay close attention to details.