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A Lot Has to Go Right for ‘Risk On’ Play to Be Right

Risk on or risk off this week? A lot has to go right for "risk on" to be right. The two issues that will move the markets are:

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1\) The European Union/European Central Bank \(learn more\). It appears ECB head Mario Draghi will be targeting the short end of the curve \(three years or less\) if and when the bond-buying program begins. Or so he hinted over the weekend, implying buying short-term debt would be against the ECB's mandate. \(Read More: ECB Bond-Buying Would Not Breach Rules: Draghi.\)

If that is the ECB's "plan," it is certain to be met with some disappointment by the markets. Not just for the scope, but how many governments live on short-term bonds alone?

What can they say to appease the markets? The problem is simple: No one has asked for help from the European Financial Stability Facility/European Stability Mechanism yet. Spanish Prime Minister Mariano Rajoy over the weekend said he wanted to see more details of the ECB's program before he made a request for aid, but said he didn't see the need for extra conditions beyond the EU policy guidelines already existing. And the German court is not ruling on the constitutionality of the ESM for another week.

2) Nonfarm payrolls. Consensus is for a gain of 100,000. A strong number, north of 150,000, would make a third round of quantitative easing (learn more) less likely, so it's unclear if this would boost the market. A weak number, 50,000 or below, could well have the opposite effect. (See: How to Trade the Jobs Report.)

Regardless: The bulls are confident because the Ben Bernanke/Mario Draghi put is still very much in evidence.

Elsewhere:

1) China's market closed at another 3.5-year low after both the "official" Chinese numbers and the "flash" PMI numbers from HSBC came in below expectations. The "official" number came in at 49.2, showing contraction in the economy, the first time it was below 50 since November 2011. The problem is not just exports: Domestic consumption is weak, as well. There are more constraints on stimulus spending than there was in 2008-2009. (Read More: China’s Growth Weakens, So When Will Stimulus Come?)

One thing's for sure: The China bulls are now very much on the defensive. Earlier in the year, the dividing line between bulls and bears was 8 percent growth on gross domestic product. Now that Q3 growth may be lower than Q2 ... the dividing line is moving below 8 percent.

2) I know you're sick of hearing about volume, but ... August consolidated tape volumes (all trading on all exchanges) of 5.4 billion shares per day were the lowest since December 2006, according to Sandler O'Neill. That was down 11 percent sequentially (July to August) and 48.6 percent year-over-year (!). Expect earnings estimates to come down for the NYSE/Euronext, Nasdaq OMX, Intercontinental Exchange, and CME Group.

Is the financial transaction tax (FTT) reducing trading in Paris? An FTT was implemented in France on Aug. 1, so this is the first month there is data available: Dollar volume on the Paris market was down 25.4 percent month-over-month, but was down only 16.1 percent in London and 16.7 percent in Frankfurt. Coincidence? We need more data, but still ...

3) Campbell Soup shares rise 4.4 percent in pre-market trading after the foodmaker beat on the top line and bottom line due to strong sales of soup and simple meals. Campbell reported fourth-quarter earnings per share of $0.41, compared to analysts’ $0.38 estimate. The company provided 2013 earnings guidance in the range of the Street’s view. Campbell at two-year high.

Smithfield Foods drops 1 percent after missing on the top and bottom line. Smithfield posted first-quarter earnings per share of $0.40, versus the Street’s $0.44 view, as weak retail demand in the U.S. hurt the company’s fresh pork business. First-quarter operating margin in the fresh pork segment dipped to negative 1 percent from 3 percent a year ago.

—By CNBC’s Bob Pisani

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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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