Trader Talk

Moving Toward the EFSF Expansion

Stocks pointed higher as initial jobless claims came in well below expectations at 391,000, the lowest since April 1. A strange comment from the Labor Department: the drop was due to "technical issues and seasonal adjustment volatility, rather than economic factors."?

Germany, as expected, has approved the expansion of the EFSF , and despite all the bluster the vote wasn't even close. All the talk that members of Chancellor Angela Merkel's own coalition would abandon her didn't happen. The debates were full of affirmations of European solidarity. Even the opposition voted in favor: 525 yeas, 85 nays, and three abstentions. That is a landslide by any consideration.

So we now have 11 of the 17 euro zone countries voting, all in favor of the EFSF expansion: Germany, Slovenia, Finland, Ireland, Portugal, Belgium, France, Spain, Italy, Luxembourg, and Greece. Estonia votes today, Austria Friday.

The rest of the votes—yes, even Slovakia—are likely to approve the EFSF expansion.

European stocks rose, but not much, and for good reason:

1. Greek stocks bucked the trend and declined. While most believe Greece will receive the next 8 billion euro ($10.8 billion) tranche of aid, almost no one believes they can avoid a substantial restructuring of the debt. The debate is: restructure and stay in the euro, or restructure and get out. A special European Union summit is coming in the next two weeks, where a decision will be made on the aid.

2. The expanded EFSF, which will have nearly $600 billion and will now be to buy bonds of distressed states and offer emergency loans to governments (which can use the money to recapitalize banks), is nowhere near large enough to deal with the scope of the problem.

Talk of expanding the program, or leveraging the money already there, is being met with the predictable chorus of boos in northern Europe. European politicians are going to have to get much more aggressive explaining the advantages of a more integrated Europe.


1. The predominant trading trend is non-trend: Professional traders, who have to go into the market every day and try to make a living, have been smacked back and forth every day for two months. Almost everyone I know has lightened up their positions; some have thrown up their hands and blamed "machines."

Especially disheartening was Wednesday's late-day selloff.

2. Advanced Micro Devices drops 9 percent after it cut third-quarter revenue and gross margin forecasts. Manufacturing issues at a GlobalFoundries factory has hurt chip supplies, and the semiconductor company sees revenues rising just 4 percent to 6 percent, down from an earlier forecast of an 8 percent to 12 percent rise. Margins are expected to be around 44 percent to 45 percent, down from prior outlook of 47 percent.

3. Beleaguered handset maker Nokia announced it plans to cut 3,500 jobs around the world. The company has struggled with disappointing handset sales and declining market share as a result of intense competition from rivals’ smartphones—including Apple’s iPhone and other Google Android devices.

4. Deutsche Bank cuts estimates on Morgan Stanley and Goldman Sachs citing challenges in investment bank and trading operations due to "a weaker macro backdrop/capital market trends." Earnings per share estimate for Morgan Stanley is cut by 10 cents to 30 cents, and below Street consensus of 37 cents. It now also forecasts a loss of 25 cents per share for Goldman, down sharply from its prior estimate for earnings of 50 cents a share, and far below Street consensus of $1.42 a share. _____________________________
Bookmark CNBC Data Pages:


Want updates whenever a Trader Talk blog is filed? Follow me on Twitter:

Questions?  Comments?