Is China Going To Take Over All Of Europe?

Yesterday, there were

that Italy was in talks with China to buy some Italian debt, but the story was very vague, details were sketchy, but stocks moved higher on the note. Bloomberg initially reported the note, via an article from the Financial Times. Five minutes later, the Financial Times denied the story, and stocks fell on the denial. Then a

popped up, with more details, and stocks rose again, finishing sharply positive. So with all of the hullabaloo, it looks as if China is going to continue to be the world's banker, except this time, they will be lending money, not buying assets. At least not yet. Italy's finance minister had discussions with China's sovereign wealth fund last week to purchase bonds, but with a $1.9 trillion debt market, no one is sure how much this will help, if at all. The Chinese sovereign wealth fund may buy, according to reports, somewhere in the neighborhood of $100 billion in debt or so. That is about 5 percent of the Italian bond market. It's a decent amount, but not nearly enough to really make a difference in the long run. There's also the worry that despite Italian Economy Minister Giulio Tremonti meeting with officials last week, that anything actually gets done. So far, China Investment Corp has so far declined to comment, making all of this much more confusing then it has been. In an

Simon Derrick, chief currency strategist at BNY Mellon, told CNBC this morning, "Don't forget this is Italy telling us, not China. We're not hearing anything from China. First, we already know that China has concerns about the euro zone, so do you really think they will start buying peripherals at the moment?" There are more than a few people that do not believe that Italy-China story, but it has happened before in the past. In late 2010,

but it did not matter. Greece is still dangerously

and may happen as soon as December, if not sooner. It also happened with Portugal earlier this year, but the fact that Portuguese bonds have continued to fall, this may make China skittish. China needs Europe, as that is where a majority of their goods are sold. China sells, Europe buys, so a stronger Europe is in China's interest. Traders need to ask themselves this question: Will the Chinese throw more good money after bad? Probably, as it tries to diversify its foreign currency assets away from the U.S. dollar, and into other currencies. Eric Wand, fixed income strategist at Lloyds, told CNBC today, "China obviously has an intention over a long period to increase its exposure to the euro and it has a vested interest in supporting it. I think they will seek to pick up bonds along the way but I don't think they will be standing behind the auction today or any in the near future." China has been playing the role of the world's banker for some time now, and as the sovereign debt crisis in Europe ultimately resolves itself, China will most certainly no doubt play a vital role. At the end of the day however, China might be owning all of Europe, rather than just lending it money.

Traders who believe that China will start buying Italian debt might want to consider the following trades:

Traders who believe that China ultimately does not help Italy out may consider alternate positions: