By Kathleen Brooks, Research Director UK EMEA, FOREX.com

It's a sea of green in stock markets today; however the macro situation remains as bad as ever. Europe is still wrangling over the role of the ECB to sort out this crisis, Spain is still nationalising banks and Austria has also ordered its banking sector to curb loans to Eastern Europe after Hungary applied for financial assistance from the IMF and EU yesterday. Added to that there is a Spanish bond auction later this morning, so there are lots of obstacles that could curb the strong open to risk assets.

Themes:

Europe remains top of the agenda but unrest in Egypt, sanctions on Iran and the failure of US politicians to agree to much-needed budget cuts could all weigh on sentiment. However, although the macro situation is as bad as ever a lot of bad news has already been priced into the markets. Short EURUSD positions expanded once again last week and remain close to their lowest levels since mid-2010, according to CFTC data. Added to this, after a weak couple of quarters stocks are starting to look temptingly cheap even amidst all of this uncertainty. The S&P 500's price-to earnings ratio is significantly lower than it was a year ago and remains at the lowest level for nearly 20 years.

So investors need to weigh up the options: are stocks the bargain of a life time or is the macro environment too uncertain to jump in and fill your boots? There's a fine balance between picking a bargain and a falling knife, so we think this is likely to keep markets range bound for some time, although when risky assets have heavy sell-offs as they did yesterday we are likely to see some buyers come in causing a short-term bounce before the next round of selling takes place.

The Spanish debt auction this morning at 0930 GMT/ 0430 ET will be closely watched after last week's disaster where Madrid had to pay close to 7% for 10-year debt. Today's auction is for 3 and 6-month bills so there could be more demand for shorter-dated debt, however we would note that the spread between 10-year and 2-year Spanish debt continues to narrow sharply as 2-year bond yields rise at a faster pace than 10-years. The spread is now 0.94%, it was 1.6% at the start of this month. This means that Madrid is likely to have to pay-up to sell its debt later today.

The ECB announced that it had bought EUR9.5 billion of sovereign bonds last week, more than double the level it bought the week before. However, this is still a very low level of purchases and the ECB remains on the side-lines. George Soros writes in the FT today that the ECB must step in to save the Eurozone, and a lack of clarity over its position is causing the excess market volatility. There is nothing stopping the ECB from buying bonds in the secondary market apart from the inflation hawks on its board. However, Italy and Spain still have EUR 30 billion of debt to auction next month and if these auctions are to be a success then we may see the ECB step up its debt purchase programme for the rest of this year.

Regarding commodities, UK oil has held at $111.95 200-day sma support. This opens the way to the $115 monthly highs. Oil could come under some upward pressure as issues re-surface in the Middle East and sanctions on Iran keep upward pressure on supply.

Gold continues to see its position as a safe haven get eroded. The precious metal continues to trade in line with stocks and other risky assets. It fell below $1,700 per ounce yesterday, and although it is higher today along with European stocks in the medium-term may not be so rosy. The 50-day sma is close to crossing below the 100-day sma, which is a bearish signal. We think gold may trade in a $1,800 and $1600 range between now and the end of the year, especially if we fail to get a decisive solution to the sovereign debt crisis in Europe.

The gold price: the 50-day sma (pink line) is close to crossing below the 100-day sma (green line)

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