Overnight Session

Tokyo sent the Euro back below $1.30 overnight on concerns that like Greece, Portugal WILL need a second bailout. The problem that Japan saw in overnight trade is that if Greece is successful in negotiating (which seems to have failed) or forcing creditors to accept the 4% coupon through retroactive collective action clauses, the same model will not work in Portugal. In Greece 90% of the bonds fall under Greek law which has very weak creditor protection, however the bulk of Portuguese bonds fall under English law which has very strong bond holder protections. If Portugal even tried what Greece is trying, they'd have so many Hedge Fund lawyers in English courts going for full par on the bonds, and that could happen in Greece as well to some degree.

Here's ES overnight leading to this mornings downside gap.

Green arrows are confirmation, white is accumulation and red is distribution, the European markets opened at 3 a.m. EDT (the red box at the bottom of the chart). As you can see, the EU session couldn't hold its open for very long and has headed down since.

On the news that the Greek debt negotiations are still in limbo, Greek 2 YEAR YIELDS have hit a record of 206%!!!!

In middle of the night talks, the EU Finance Ministers seemed to have crammed down an ESM treaty with few details available, it has been seen as shady. The formal launch date has been pushed up by a year to July 2012, which gives EU nations very little time to discuss and ratify the treaty. Late night German newscasts said the fund would have a financing volume of $500 billion however different finance ministers and the IMF have suggested the fund will be bigger or should be bigger. The actual capital at launch has been extremely diluted to $80 billion instead of the original $700 billion, most of the capital is supposed to be raised via guarantees, however with so many EU nations losing their triple A status, it will put extra pressure on the remaining triple A members, most of which have been hesitant with regard to adding additional guarantees being their own Aaa status may be cut as a result, also it is a political hot potato with citizens of those nations.

What has been most troubling s that the changes to the ESM as of last night have not been communicated at all. Links to the ESM on various websites lead to error pages. It is a late night fishy act.

Overnight the EU attack on ratings agencies have been stepped up, in Milan Italy, the offices of Fitch were raided, we saw this before in Europe as well as Draghi's dismissal of the ratings agencies. It s said that Italian authorities are investigating , "Market Abuse" and "Insider Trading". This is something I predicted would happen as far back as the US downgrade.

The very latest just this morning comes from the IMF, the IMF Financial Stability Report claims:

• 2012 world growth outlook cut to 3.3% from 4.0%, 2013 growth revised lower to 3.9% from 4.5%
• 2012 US growth of 1.8%, 2013 at 2.2%
• 2012 UK growth of 0.6%, down from 1.6%
• 2012 China growth of 8.2%, down from 9.0%
• Eurozone to enter "mild" recession with -0.5% economic growth, to grow again in 2013 by 0.8%.