Trader Talk

Markets Focus Is on Europe, Not the US

Europe and U.S. futures have dropped, partly on an unconfirmed Reuters report that European Central Bank Executive Board Member Juergen Stark will step down because of a conflict over the central bank's bond-buying program.

Stark, a German, apparently does not agree with the bond buying program.

The main story Friday morning is in Europe, not in the U.S. or with President Obama's speech. The ECB is again buying Italian and spanish bonds, though the purchases appear to be modest.

The euro is down again, near six month lows, with copper down 2.2 percent, gold and silver also down 1 to 2 percent.

Attention is now focused on the Group of Seven nations finance meeting. The host country—France—has already called for coordinated action (read: rate cuts). International Monetary Fund Chief Christine Lagarde has been urging policy makers to use all available tools to boost growth.?

The trading community seems to have some vague hope that the assembled finance ministers will emerge hand-in-hand singing "La Marseillaise," immediately march toward Strasbourg and join up with other European finance ministers to proclaim they are now the United States of Europe .

Where do they get these notions? Not only will this not happen, but there is not even a plan to issue a joint communiqué after the talks.


1. While President Obama did deliver a headline surprise with his $447 billion "American Jobs Act," he did not outline how he would pay for it, other than a vague promise of a long-term deficit reduction plan over 10 years that he says he will detail in the coming days. Nomura is already out with estimates that it could raise gross domestic product growth in first-quarter 2012 by as much as 1 percentage point.

Most of the plan's impact seems designed to show up in calendar 2012. Here's how the $447 billion breaks down, in billions:

Employee payroll tax holiday: $175
Employer payroll tax holiday: $65
Aid for state/local governments: $85
Infrastructure spending: $50
Infrastructure bank: $10
Extending unemployment insurance: $49
Tax credits for the unemployed: $8
Tax break for investment: $5

One surprise: Less discussion on helping housing than was expected...a mortgage-refinancing proposal was briefly mentioned, but no details were given.

2. Inflation in China, at 6.2 percent year-over-year in August, was in line with expectations. This is likely low enough to prompt the Chinese to hold off on any further rate hikes. Economic growth has slowed somewhat but is still strong: A 13.5 percent increase in industrial production with a 17 percent increase in retail sales.

3. Texas Instruments falls 1.5 percent after providing a weak mid-quarter update. The chipmaker narrows its third-quarter earnings forecast to 56 cents a share to 60 cents a share, mostly below 60 cents a share consensus, and expects much weaker revenues than its previous forecast ($3.23 billion to $3.37 billion, well below consensus of $3.53 billion). The company cited "broadly lower demand across a wide range of products, markets and customers" for the weak outlook. As a result, it’s relying on various cost cuts to help prevent earnings from falling as much as its sales.

4. McDonald's falls 2 percent after reporting a disappointing 3.5 percent rise in August global same-store sales. The fast food chains same-store sales outside the U.S. were much weaker-than-expected with Europe same-store sales up just 2.7 percent and Asia same-store sales falling 0.3 percent. U.S. same-store sales held up though, rising 3.9 percent in the month on the strength of its McCafé, breakfast, and premium chicken sandwich offerings.

5. Dollar General falls 2 percent after the discounter priced 25 million shares in a secondary offering. It priced the shares at $34.75, slightly short of yesterday’s $35 close.

6. United Continental reported a 2.7 percent drop in August traffic. Hurricane Irene hit revenue by about $40 million.

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