The Guardian newspaper out of the UK created quite a stir yesterday afternoon with a report that France and Germany agreed to leverage the EFSF to 2 tln euro.  Conspicuously absent from the article were quotes from Nicolas Sarkozy and Angela Merkel.  In fact, there weren't any quotes from named sources. 

The article was replete, however, with remarks from "EU diplomats" and "senior EU officials."  Oh, and at the end, it was said that these senior EU officials "admit that technical details remain to be settled." 

The debate today is whether the article, or the market's reaction to it, was more ridiculous.

Basically, it was an article of speculation that said everything and nothing.  The main component -- the 2 tln euro EFSF plan -- wasn't even new, as that target zone has been discussed in various press reports in the past.

The equity market, nonetheless, took the "news" and ran with it, showing how desperate it is to believe a worst-case scenario in Europe can be avoided.  The sudden turn of events had the smell of short covering on the heels of a Monday decline that had everyone second-guessing the EU's resolve to pass a grand solution in the near future.

Guessing is essentially the operative word these days.  Everyone is left guessing what the next headline will bring and what direction the capital markets will next take.  It is little wonder that the trading action is so volatile.

Today the guessing game revolves around the EU reports and whether the market, which is at the upper end of a trading range, can break out to the upside.

At the moment, the S&P 500 is going to remain behind resistance bars so to speak as the S&P futures are trading roughly in-line with fair value, suggesting a relatively flat start to the day.

Similar to yesterday, there is a lot of information for participants to digest on the political, corporate, economic and cultural fronts.

The U.S. presidential campaign is bringing out the best and worst of our political system; corporate earnings have been somewhat mixed; CPI and Housing Starts data were better than expected; Moody's downgraded Spain's sovereign debt rating by two notches from A1 to Aa2; violent protests have erupted in Greece again; and passive protests continue on Wall Street.

The earnings news, which should matter most to the equity market, brought a surprise miss from Apple (AAPL), though it should be noted Apple still blew away its original guidance and is remarkably profitable.  Those points have been lost so far amid frothy expectations as shares of AAPL are indicated nearly 5.0% lower in pre-market action.

Intel (INTC), on the other hand, beat estimates by a comfortable margin, raised fourth quarter revenue guidance above the Capital IQ consensus estimate, and added $10 bln to its buyback plan for good measure.  Shares of INTC are indicated nearly 4.0% higher in pre-market trading.  That will offset some of AAPL's expected decline.

Morgan Stanley (MS), like many of its peers, had a messy-sounding report and appeared to do better than the market was expecting due to a debt valuation adjustment.  Even so, the takeaway seems to be that it could have been worse, and because it wasn't, its stock has been spared.

Other luminaries to report include United Technologies (UTX), which beat by three cents, Travelers (TRV), which missed by 15 cents, Yahoo! (YHOO), which beat by four cents, Blackrock (BLK), which beat by 13 cents, and CSX Corp. (CSX), which was in-line with the Capital IQ consensus estimate. 

Shifting gears, the September CPI data did not follow form with the PPI data.  Headline CPI was up a tamer 0.3%, which was in-line with the Briefing.com consensus estimate, while core-CPI rose 0.1%, which was better than the 0.2% increase expected by economists.  This report shows that the pass through of higher producer prices to the consumer has not been occurring full bore.

Housing starts increased a surprising 15% in September to 658,000 (Briefing.com consensus 595,000).  That was well ahead of expectations, although the strength does not appear to be sustainable considering multi-family starts were up 51.3% in September and drove the increase.  Single-family starts rose 1.7%.  Building permits, meanwhile, slipped 5.0% to 594,000 (Briefing.com consensus 610,000). 

--Patrick J. O'Hare, Briefing.com

Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service.  To request a free trial, please email researchsales@briefing.com.