Market Morning: Monti Can Use a Miracle

Updated from 5:59 a.m. EST

NEW YORK (TheStreet) -- Optimism that Europe is getting its house in order is driving the global market action early Monday.

European stocks were down slightly after being up earlier in the session after Silvio Berlusconi bid farewell over the weekend, and Mario Monti worked to form a new Italian government.

Monti, an economist, has his work cut out for him.

Italy is the eurozone's third-largest economy and it's considered too big to bail out. It has debt of about €1.9 trillion ($2.6 trillion) , according to The Associated Press.

In a positive sign Monday, the yield in Italy on the benchmark 10-year bond was at 6.28%. Last week, it rose above 7%, the level at which Greece, Ireland and Portugal were forced to take bailouts.

In an auction Monday, Italy raised €3 billion ($4.1 billion) of five-year debt from markets. Investors demanded an interest rate of 6.29%, the highest level since 1997, compared with 5.32% at a similar auction a month ago, AP said.

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Asian stocks rose Monday after Japan said its economy rose 6% in the latest quarter.

Japan's Nikkei 225 index added 1.1% to close at 8,603.70, while Hong Kong's Hang Seng gained 2% and South Korea's Kospi jumped 2.1%.

Japan, still feeling the effects of the earthquake and tsunami in March, saw its economy expand for the first time in four quarters.

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Gold prices were seesawing Monday as Monti, the European Central Bank's former vice president, was tasked with forming a new government in Italy.

The news is good, on the one hand, as Italy now has a better chance of implementing austerity measures and securing more bailout cash, which props up the euro and gold and weighs on the dollar. On the flip side, there are still many hurdles the government has to overcome. In addition, there is Greece, which is in the process of shoring up its own interim government, which can trigger a flight to safety into the U.S. dollar.

Gold is typically a safe haven, but some traders, especially those on the futures market, could be selling positions to raise cash especially with prices near $1,800 an ounce.

Anecdotal data , however, points to strong investor interest. BullionVault.com, an online exchange, reported its financials for full year 2011. The stock of gold bullion bars belonging to BullionVault participants grew 34% to more than 26 tons -- more than gold reserves of Hong Kong, Luxembourg, Canada, Ireland and Qatar. Volume on its exchange grew 142%, which shows investors are actively trading gold.

-- Alix Steel

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President Obama, hosting a forum of 21 Asian-Pacific nations in Hawaii over the weekend, had harsh words for China, saying China should stop "gaming" the international system and create a level playing field for U.S. and other foreign businesses, according to Reuters.

"We're going to continue to be firm that China operate by the same rules as everyone else," Obama said. "We don't want them taking advantage of the United States."

Obama said China, America's main economic rival, should act like a "grown-up" economy.

"Their role is different now than it might have been 20 years ago or 30 years ago when, if they were breaking some rules, it didn't matter. Now they've grown up," the president said.

China said it would abide by international rules, if it knew what those rules were.

"First we have to know whose rules we are talking about," said Pang Sen, a deputy director-general at China's Foreign Ministry, Reuters reported.

"If the rules are made collectively through agreement and China is a part of it, then China will abide by them. If rules are decided by one or even several countries, China does not have the obligation to abide by that," Sen said.

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FBR Capital Markets analyst Edward Mills said in a report Monday that large mortgage servicers, including Bank of America (BAC), JPMorgan Chase (JPM), Flagstar Bancorp (FBC) and First Horizon National (FHN) could "benefit from an upside surprise," if the Federal Housing Finance Agency's expanded home refinance plan "is very explicit in waiving representation and warranties risk for servicers of legacy mortgages."

The Federal Housing Finance Agency, or FHFA, is the regulator for Fannie Mae (FNMA) and Freddie Mac (FMCC), the mortgage giants that were place under government conservatorship in September 2008.

The FHFA is set to release the details of its expanded Home Affordable Refinance Program, or HARP, program on Tuesday. Under the expanded HARP, qualifying borrowers with mortgages held by Fannie and Freddie -- representing roughly half of all U.S residential mortgage loans -- will be able to refinance their entire loan balances, regardless of the value of the home securing the loan. Through fee discounts, the borrowers will also be encouraged to refinance at shorter-term maturities than the most common 30-year term.

-- Philip van Doorn

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Emirates, Dubai's fast-growing airline, ordered 50 Boeing(BA)(BA) 777s, marking Boeing's biggest-ever single order in dollar terms.

The deal, for an extended range version of the 777-300, is valued at $18 billion. Emirates has an option to buy another 20 of the planes, which would push the deal's face value to $26 billion.

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J.C. Penney (JCP) and Lowe's(LOW) report earnings Monday.

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-- Written by Joseph Woelfel

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