With nothing else on the economic calendar today, Spain-centric
hopes are adding to market optimism that the Draghi Plan will
finally become operational. Also on deck today is the release of
) iPhone 5, which will likely bring in stories of long lines of
fans around the company stores. Given Apple's status in the market,
the apparently successful iPhone 5 launch is a net positive for
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A little explanation of the Spain news is in order, as bailout
hopes of a large country like that would generally be considered a
negative for the market. The reason it's a positive is that the
Draghi Plan -- in which the European Central Bank will effectively
backstop Spanish government bonds -- will only get triggered if the
country formally asked for help (read:
). But the ECB bond purchases are preceded by strict budgetary and
The recently elected conservative government has been loathe to put
Spain in the same league as Greece, Portugal and Ireland by asking
for a bailout, hoping that the mere presence of the Draghi Plan
will do the trick for them. But sanity seems to be prevailing now,
helping remove the uncertainty which has been holding back the ECB
from playing its announced role.
Spain's pride aside, there are other issues holding the Draghi Plan
back. Tiny Finland is apparently not on board with the plan to
leverage up the European Stability Mechanism -- the €500 billion
permanent bailout facility that comes into being early next month.
The original plan was the fund would leverage up to increase its
buying power beyond the level contributed by the members. The hope
is that Finland will eventually be brought around to agree to the
original plan, but its consent may not come soon enough if Spain's
request comes through in the next few days.
In corporate news, Apple will dominate the headlines, but
) revenue miss after the close on Thursday gives us a foretaste of
what to expect from the third quarter earnings season that gets
underway in a couple of weeks. Revenue growth was a persistent
problem in the last earnings season and will most likely be a key
issue this time around as well.
In other earnings reports, we got positive results from
), the operator of Olive Garden and Red Lobster chains, and
). My sense is that the market will remain in a tentative mode till
it gets a sense of the earnings picture as the third quarter
reporting cycle gets underway.