They're concerned about the likely downgrade of European sovereign debt (particularly France) by Standard and Poor's. The EFSF is backed by the AAA rating of several countries, particularly France; if that rating declines the borrowing cost of the EFSF/ESM will increase, reducing the firepower of the funds. Adding more money balances out the loss.
1) Spain's new government gave a taste of the upcoming austerity: the public deficit in 2011 would be 8 percent of GDP, higher than the 6 percent target. The Deputy Prime Minister said the government would freeze civil servants' pay.
2) China PMI at 48.7, a second month of contraction. China reduced lending reserve requirements (effectively expanding the money available to loan) a short while ago and may do so again. China's Shanghai Index is down roughly 21 percent for the year (!).
3) speaking of global stock markets, all of the top Asian stock indexes end the year well in negative territory.
Europe is a sea of red with one exception: Ireland. Across the pond, this is the lone country that will likely end 2011 in positive territory, up 0.6 percent year-to-date. It is a darling of Germany, who has held Ireland up as an exemplar of austerity. The cost to the Irish people has been terrible and poorly documented.
Back home, the S&P 500 is teetering around the breakeven point, up 0.43 percent for the year.
S&P 500 0.43%
Dow Industrials 6.13%
Nasdaq Composite -1.48%
China (Shanghai Composite) -21.70%
Hong Kong -20.00%
Japan (Nikkei 225) -17.30%
New Zealand -1.00%
Emerging Markets (YTD)
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