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Did the G20 Punt on Expanding the IMF Bailout Fund?

Monday, 27 Feb 2012 | 9:05 AM ET
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U.S. futures were weaker, with European stocks mostly down. Over the weekend, the Group of 20 (G20) finance finisters punted on expanding the International Monetary Fund’s own bailout fund, insisting Europe expand its own fund first.

U.S. Treasury Secretary Tim Geithner said, “There is broad agreement that the IMF cannot substitute for the absence of a stronger European firewall, and that the IMF cannot move forward without more clarity on Europe’s own plans.”

Germany votes on Greek bailout: Merkel faces growing dissension. Will Germany soften its opposition to expanding the European bailout funds? We will get hints of that today when Germany votes on the Greek bailout; expect lots of hard-line rhetoric against shelling out any more money — to the Greeks, to the European bailout funds, to the IMF...to anybody.

The Greek bailout bill will pass, as it will likely pass in votes in Finland and the Netherlands this week.

And the betting is that the Germans will eventually go along with combining the two European bailout funds — the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) — creating a “pool” of about 750 billion euros.

But the focus of traders is on the next three-year European Central Bank auction on Wednesday, where it’s been estimated European banks will borrow anywhere from 400 billion to 1 trillion euros. They will need to borrow to cover existing funding requirements for the year; they will also likely borrow more to play the carry trade (borrow at 1 percent and buy European bonds at 3 to 4 percent), and maybe a little more to lend out to borrowers (what a thought!).

They’d better hurry if they want to play the carry trade: Yields are dropping fast. Italy sold six-month bills at 1.20 percent this morning. Italian two-year yields are down 9 percent to 2.62 percent, the lowest levels since April 2011, Spain’s also are at 2.52 percent, a multi-year low.

Elsewhere:

1) Lowe’s Cos. rises 1.7 percent pre-market after the second-largest home-improvement retailer beat analysts’ fourth-quarter top-line and bottom-line expectations on increased sales due to mild weather and an extra week in the quarter. Lowe’s reported fourth-quarter earnings of $0.29, compared to the Street’s $0.24 estimate. The fourth quarter’s extra week added $766 million in sales, or 5 cents to earnings per share. Same-store sales rose 3.4 percent in the fourth quarter, though they were essentially flat for 2011. The company expects same-store sales to increase 1 percent to 3 percent in 2012, and it sees full-year earnings of between $1.75 and $1.85, bracketing analysts’ $1.79 expectation. Lowe’s posted fourth-quarter gross margin of 34.22 percent and sees 2012 operating margin up about 1 percent.

2) MetroPCS shares climb 4 percent pre-open on Friday’s news Sprint Nextelexplored, but rejected, a multibillion-dollar deal to acquire wireless rival PCS. MetroPCS serves a 9.3 million clientele and had a market value of about $4.3 billion as of Friday’s closing price. Sprint reportedly turned down the deal, which would have offered about a 30 percent premium over MetroPCS’s share price last week, because timing wasn’t right. The dropped deal comes on the heels of AT&T’s proposed acquisition of Deutsche Telekom’s T-Mobile last year, which failed due to opposition from government regulators.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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