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Trader Talk with Bob Pisani

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  • There's been a modest midday rally on reports that China may invest in the EFSF. As I pointed out this morning, this is part of a much wider plan by China to have more sway in the EU and the IMF. Peter Boockvar has also pointed out that investing in the EFSF also provides diversification from U.S. Treasurys.

  • The euro weakened, stocks in Europe and the U.S. have weakened, on several headlines indicating that the EU may not set the size of the EFSF capacity tonight, that a final agreement may not occur until the end of November.

  • The German Bundestag has reportedly approved a strengthening of the European Financial Stability Facility. 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.

  • Where are we? We're at the top end of a trading range. What can move stocks up or down? Three big movers are Europe, U.S., China. And the fourth?

  • German Chancellor Angela Merkel

    Didn't the German parliament approve an expansion of the EFSF at the end of September? They did indeed, but the situation has changed.

  • Statue and Italian Flag in front of Vittorio Emanuele monument.

    Can they make it? Amid reports of intense disagreements, European Union leaders are now out of time for their EU Summit meeting tomorrow, after which German Chancellor Angela Merkel said they would present a coherent plan for dealing with the euro zone crisis. There were reports that began surfacing yesterday that disagreements were so intense it was possible it could be put off again. The EU Finance Ministers meeting scheduled for Wednesday has reportedly been postponed.

  • It's crunch time: German Chancellor Angela Merkel has to show her hand. German paper Der Spiegel has talked to parliamentarians in Germany who have been briefed by Merkel on what she will be proposing to the Bundestag's budget committee tomorrow, and the full Bundestag on Wednesday.

  • Merkel as Houdini. The risk now is in Germany. German Chancellor Angela Merkel must now turn to the Bundestag's budget committee on Tuesday to get approval of the EFSF expansion...but what's the deal? It hasn't been announced, but she must know what it is.

  • Global stocks are rallying strongly today as Eurozone finance ministers meet today and ahead of the EU leaders’ meeting on Sunday. All that will likely come to a head by Wednesday, when a second summit among EU leaders is expected to result in a “definitive agreement” on the EFSF.

  • Bob Pisani is away. He will return on Monday, October 24.

  • Here's a simplified schedule of the EU Summit this weekend — and next Wednesday.

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    US stocks moved off their lows a couple of hours ago, as German Chancellor Angela Merkel and French President Nicolas Sarkozy issued a joint statement saying they will have a "definitive agreement" on recapitalization of European banks and expanding the EFSF "by Wednesday, at the latest." Wednesday? The EU Summit is on Sunday.

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    Market are expecting more volatility. Dean Curnutt and others have noted that the S&P 500 is near where it was a week ago (1,202) but the VIX is almost 20 percent higher (from 30 to about 36). Market are expecting higher volatility because a lot is unsettled in Europe.

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    The German newspaper Die Welt said the German government could not rule out postponing the EU summit this weekend. The followup headline from Reuters: "Senior EU sources say unaware of any plan to postpone Sunday's EU Leaders' summit." Of course they are unaware.

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    No shock and awe this weekend? It sounds like Europe is going back to incremental changes. Traders have been anticipating the European Union 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.

  • Stocks have come off their highs on a series of headlines out of Europe. With four days to go until the EU Summit, there are reports that the Germans and French are unable to agree on a plan for leveraging the EFSF, or that using the EFSF as a "first loss" insurance policy might not be legally possible.

  • Naturally, skeptics abound, particularly around the concept of using the EFSF as a "first loss" insurance policy. Under this scenario, sovereign bonds will be issued to finance expiring bonds, and the EFSF will be used to back, say, the first 20 percent of any losses.

  • Today, Europe ratchets up expectations. A day after German Chancellor Angela Merkel tried to talk down expectations at the EU Summit Oct. 23, France's President Nicolas Sarkozy, quoted in the Financial Times, said they would be taking "important, very important decisions in the coming days."

  • Conflicting reports out of Europe about what will happen at the EU Summit this weekend confounded traders in the last hour. Dow Jones said a Guardian report that there was a deal to lever up the EFSF was "totally wrong."

  • The S&P 500 moved over 12 points to the highs of the day on a report from the Guardian in London: "France and Germany have reached agreement to boost the eurozone's rescue fund..."

About Trader Talk

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.

 

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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