China Flexes Its Muscles in Global Power Grab

The German Bundestag has reportedly approved a strengthening of the European Financial Stability Facility (EFSF).

China is waiting, but will make a move soon. The head of the EFSF , Klaus Regling, is going to China and likely other Asian countries to seek money for his fund. Not clear if the money would be for a special purpose vehicle, or to just contribute to the fund to buy EFSF bonds.

Regardless: China's involvement in the EFSF will come with a steep price. According to The Wall Street Journal, "Beijing is asking Europe to formally recognize China as having the status of a market economy to reduce Chinese exposure to EU anti-dumping rules."

Get it? Beneath all the trade-speak, this is about China flexing its muscles in a global power grab.

This is not about Greece. This is about China using the euro sovereign debt crisis as a way to lever itself into becoming a major player in the International Monetary Fund . This is very big global politics.

Silvio Berlusconi to the EU: "The letter is coming. Really. And it's really, uh, substantive." The Italian crisis is devolving into farce of a high order. Prime Minister Silvio Berlusconi was told by the EU to submit credible plans for reforming Italy's economy, particularly the pension and labor laws, by the summit today. He has been unable to get even the simplest of proposals on economic reform through his own cabinet (to raise the age of getting a pension from 65 to 67).

Mr. Berlusconi will today be sending a letter to the EU outlining efforts at reform. Reportedly, it will address the retirement issue, raising the retirement age to 2025! Really. That is reform in Italy.

Meantime: How involved is the ECB in Italian debt purchases? Italian 10-year debt hovers around 6 percent, but doesn't go much over it.


1. Tough to call this earnings season...what's the right way to look at Amazon? Most feel it is a build-out, an infrastructure issue.

The big industrial names that warned yesterday — 3M, Cummins, Illinois Tool Works — are victims of the global slowdown. But many traders have told me we are entering a global easing cycle. "Australia and China on deck to ease," one trader wrote to me this morning. "I still would be a buyer of stocks and I would be these cyclical names on weakness."

Indeed...Boeing had a nice beat.

2. Boeing rises 4 percent after handily topping estimates ($1.46 a share vs. $1.10 a share consensus) on solid top and bottom line growth at its commercial aircraft division and very strong earnings growth out of its defense division. Guidance for the full-year is raised to $4.30 a share to $4.40 a share vs. $4.26 a share consensus. However, Boeing cut its 2011 delivery forecast for its new 787s Dreamliners.

Fellow defense companies Northrop Grumman and Lockheed Martin both also easily beat forecasts and raised their full-year guidance too.

Still, watch the guidance. I noted yesterday that there has been a higher level of earnings warnings than normal. Standard and Poor's said that of the 111 companies that have issued guidance, 34 are up and 64 are down, bringing the negative-positive ratio to 1.88. That is well above the second quarter’s ratio of 1.33.

3. Ford Motor beats estimates (46 cents a share vs. 44 cents a share consensus) on much stronger-than-expected sales . However, despite the impressive topline growth, earnings were significantly tempered by troublesome rising commodity costs in the quarter. Looking ahead, the automaker raised its production forecast for the fourth quarter, but said unit sales in the U.S. would be at the low end of its 13 million to 13.5 million forecast.?

4. Sprint Nextel rises 2 percent after reporting a narrower-than-expected loss (10 cents a share vs. 22 cents a share consensus). However, costs related to the iPhone are an issue ahead, with 2011 free cash flow now seen between a loss of $200 million to a gain of $100 million. The company had previously expected positive cash flow during the year.

But can the big investment in the iPhone stop the exodus of subscribers from the struggling wireless carrier? Sprint’s contract subscriber base continues to fall, as the carrier lost 44,000 customers in the quarter, more than expected, albeit less than the drop in the previous quarter.

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