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No Shock and Awe This Weekend?

Traders lament: "You can't short them, you can't liquidate, you can't buy."

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The German newspaper Die Welt is reporting that the German government cannot rule out postponing the European Union summit this weekend. It's a clear sign government leaders need more time to hammer out an agreement.

So, no shock and awe this weekend? It sounds like Europe is going back to incremental changes. "It's hard to fight Sunday, but what's Sunday?" one trader said to me. Indeed. Traders have been anticipating the EU summit on Sunday will resolve issues related to: 1) a greater haircut on Greek debt; 2) recapitalization of banks; and 3) how to use the European Financial Stability Facility (EFSF).

We may not get a clear statement on the Greek haircut. The Financial Times is reporting this morning that the "troika" is recommending that Greece get its next 8 billion euro ($11 billion) in aid, but "its economic outlook is deteriorating so rapidly that the second bail-out plan, agreed just three months ago, is no longer adequate to keep Athens afloat..."

There are also indications that recapitalization of banks will be much smaller than anticipated. Talk now talk is 80 billion to 100 billion euros ($110 billion to $137 billion), far smaller than market participants expected.

It looks like governments (France in particular) are simply unwilling to issue more debt for fear it would lower their sovereign credit ratings.

And the EFSF...it's not clear what will happen. A Reuters story said the EFSF will be able to buy sovereign debtat auction, but only up to 50 percent of the entire auction. No surprise there, but using the EFSF as a "first loss" insurance policy, widely debated this week, may not be feasible.

What are traders doing? "You can't short them, you can't liquidate, you can't buy," one trader said. We are at the high end of the recent trading range, so it's easy to argue, as one trader did, "enough is enough here...let me wait for a new opportunity...rather than buy at the highs."

Reactive, not proactive.

The problem: It sounds like chaos in Europe, but you don't know for sure. Certainly the sounds of disagreement give ammo to eurobears, but it's still possible some "grand deal" might emerge.

In the words of another trader: "They'll get into a room, one will say, 'We ain't paying,' the other will say, 'Fine, don't pay. We're heading for Armageddon.' "

Is there anything that can rescue the euro zone? The final "bazooka" left is the European Central Bank (ECB) and its ability to directly buy sovereign debt. Yes, this is printing money, and yes, it would dramatically expand the ECB balance sheet. The moral hazard of doing this is obvious. It may have no choice.

Elsewhere:

1. Ingersoll-Rand beats third-quarter estimates (81 cents a share vs. 79 cents a share consensus) but provides disappointing fourth-quarter guidance. Like many other global corporations, the maker of security products and air conditioners saw stronger sales abroad than here at home. While commercial sales grew steadily, sales of products for homes slumped as the "residential and consumer markets remain depressed." For the current quarter, the firm expects earnings of 64 cents a share to 70 cents a share, mostly below 70 cents a share consensus. ?

2. Union Pacific beats estimates ($1.85 a share vs. $1.81 a share consensus). Higher volumes across most of its freight/cargo groups rose and the railroad also realized higher prices, which helped drive slightly greater-than-expected revenues and also offset rising fuel costs. CEO Jim Young still expresses optimism for the company ahead even as the "economic outlook is uncertain."

3. Nokia rises 8 percent on quite frankly a less gloomy report than Wall Street expected. The handset maker reporter a much narrower-than-expected loss, while many of the company’s metrics weren’t as poor as analysts feared. The one bright spot was an 8 percent rise in shipments of lower-end mobile handsets. But don’t kid yourself, overall, the numbers are still pretty depressed. Smartphone volumes fell 38 percent, with average prices falling 22 percent. Handset operating margins were just a meager 2.4 percent, but that wasn’t as disastrous as the negative 4.5 percent margins it saw in the prior quarter.

4. AutoNationtopped estimates by a penny on stronger-than-expected sales. Although same-store sales of new vehicles were down 2 percent, the auto dealer’s results were helped by higher prices in new and used vehicle sales. CEO Mike Jackson expects "the new vehicle sales environment.

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