What’s the Story?

by CC February 27, 2012 9:12 am • Commentary


U.S. stock index futures were lower Monday, tracking losses in European shares, after the G20 told Europe over the weekend it must commit mor ecapital to fight the debt crisis before seeking more help.

European shares slumped after members of the Group of 20 leading economies told Europe it must raise extra funds to combat the ongoing debt crisis if it wants more aid from the rest of the world, adding pressure to Germany to drop its opposition to a bigger European bailout.

Euro zone countries pledged to reassess the strength of their bailout fund in March, which could clear the way for other G20 countries to give more funds to the IMF.

On the economic front, the National Association of Realtors will issue pending home sales data for January at 10.00 am ET. Analysts polled by Briefing.com predict a 1.0 percent rise, compared with a 3.5 percent drop in the December.

Lowe’s [LOW  27.16        ] rallied after the home-improvement chain posted higher-than-expected sales, thanks to the warm weather that prompted more homeowners to take up renovation projects.

Sprint’s [S  2.47        ] board of directors decided to walked away from a nearly finalized deal to acquire MetroPCS [PCS  12.01        ]. The dropped deal comes on the heels of AT&T’s[T  30.34        ] proposed acquisition of T-Mobile last year, which failed due to opposition from government regulators.

Disney [DIS  41.31        ] edged higher after Goldman Sachs has upgraded the media conglomerate to “conviction buy” from “neutral”, citing ESPN’s performance in addition to strength in theme parks.

—Follow JeeYeon Park on Twitter: @JeeYeonParkCNBC

Coming Up This Week:

MONDAY: Pending home sales index, Dallas Fed mfg survey; Earnings from Priceline.com
TUESDAY: Durable goods orders, S&P Case-Shiller home price index, consumer confidence, Fed’s Pianalto speaks, JPMorgan Chase investor day; Earnings from Office Depot, DreamWorks Animation
WEDNESDAY: Weekly mortgage apps, GDP, Fed’s Fisher speaks, Chicago PMI, Bernanke speaks, oil inventories, Fed’s Plosser speaks, Beige Book; Earnings from Costco, Staples
THURSDAY; Fed’s Pianalto speaks, jobless claims, personal income and spending, ISM mfg index, construction spending,  Fed’s Lockhart speaks, Fed’s Williams speaks, auto sales, chain store sales, EU summit; Earnings from Big Lots, Kroger, Wendy’s
FRIDAY: Fed’s Bullard speaks, Yelp set to trade


Leading economies told Europe it must put up extra money to fight its debt crisis if it wants more help from the rest of the world, piling pressure on Germany to drop its opposition to a bigger European bailout fund.

Euro zone countries pledged on Sunday, at a meeting of finance leaders from the Group of 20 economic powers, to reassess next month the strength of their bailout fund.

This would be “essential input” when it comes for the G20 countries to consider putting more money into the International Monetary Fund’s crisis war chest, G20 finance ministers and central bankers said in their final communiqué after two days of meetings here.

“There is broad agreement that the IMF cannot substitute for the absence of a stronger European firewall and the IMF cannot move forward without more clarity on Europe’s own plans,” U.S. Treasury Secretary Timothy Geithner said.

Germany, as Europe’s largest economy, has sent conflicting signals over whether it is ready to soften its position, and it came under intense pressure this weekend to support enlarging the region’s war chest.

It faces political hurdles at home. German lawmakers, who vote on Monday on a second Greek bailout package, have argued that imposing fiscal discipline on indebted countries is far more important to regaining the confidence of markets and reviving economic growth than bigger rescue funds.

Geithner disagreed. While Europe’s actions so far have reduced the risks of a “catastrophic” financial crisis, more must be done, he said.

British finance minister George Osborne was even sharper.

“We have to see the color of the euro zone’s money first – and, quite frankly, that hasn’t happened. Until it does, there’s no question of extra IMF money from Britain or probably anyone else,” he said.


The dollar rose on most major rivals as the euro fell prey to apparent profit-taking in quiet trading Monday, after the Group of 20 nations refused to boost funding for the International Monetary Fund until the euro zone boosts the size of its own firewall.

The ICE dollar index DXY +0.30% , which tracks the U.S. currency against six rival units, rose to 78.602 from 78.341 late Friday.

The euro EURUSD -0.58%  changed hands at $1.3397, down from $1.3462 late Friday in North American trade. It jumped to a three-month high on the dollar last week.

G-20 finance ministers, meeting in Mexico City, said in a communiqué that they supported adding funds, via the IMF, to shore up the euro zone’s finances. But Europe first must contribute more money, they said. See report on G-20 statement…

Also Monday, the dollar USDJPY -1.04%  traded at 80.50 Japanese yen, pulling back after earlier having risen above ¥81.60 to approach a nine-month high.

Likewise, the euro EURJPY -1.65%  tumbled back to ¥107.86 from Friday’s ¥108.97, a reversal after initially pushing above the ¥109 level during Asian trading.

The British pound GBPUSD -0.25%  appeared to track the euro lower, slipping to $1.5842 from late Friday’s $1.5889.


The bailout that rescued Greece from a looming default has failed to restore confidence in credit markets, where traders are paying nine times more to insure European government bonds than they are for Treasuries.

While European stocks are off to their best start since 1998, the relative cost of credit default swaps has risen to a record, more than double the July level, according to CMA. To obtain 130 billion euros ($175 billion) in aid to help pay interest on bonds due March 20, Greek Prime Minister Lucas Papademos agreed to reduce debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year.

While chances of defaults and the breakup of the euro may have diminished, investors are no longer rewarding European governments for reducing spending to cut debt as their economies shrink. U.S. bond yields have stayed near record lows and growth is accelerating as President Barack Obama uses a different strategy, more than doubling the amount of outstanding debt to $10 trillion to fuel the recovery.

“Bond markets don’t believe in the same story that stock markets do,” Robin Marshall, director of fixed income in London at Smith & Williamson Investment Management, which oversees about $18 billion, said in a Feb. 22 interview. “Countries are still saddled with huge debt, are facing either economic downturn or recession.”