It’s becoming increasingly difficult to comment on the various rumours emanating from the new ‘technocracy’ put in place in Europe. On Friday of last week the FT published their findings that the EFSF could not be enlarged anywhere near the capacity required to be the necessary ‘bazooka’, as a consequence the equity index markets fell and currencies duly adjusted.
On Sunday afternoon we had news from an Italian newspaper that the IMF was committed to lending Italy circa €600 billion over an a period of two years, covering their debt for such time ensuring they wouldn’t have to access the bond markets at punitive rates, such as 7%+. La Stampa even went so far as to suggest the loan had been agreed at 4%. However the IMF have this morning poured cold water on such a theory stating; “There are no discussions with the Italian authorities on a program for IMF financing”. The IMF are due in Rome this week to discuss Italy’s crisis, but no specific date has been given.
The reaction to the IMF rumour once markets opened yesterday evening was nothing short of spectacular, the equity future on the DOW has risen by circa 250 pips, the UK FTSE is up 1.78% and the DAX up 2.86%, on the strength of a rumour that the IMF have categorically denied. For many involved in speculation and investment there has never been a time were global markets are on such a knife-edge that they turn on the basis of such baseless rumours. These unfounded rumours used to relate to (and move) individual stocks, not markets in their entirety. This is surely an indication of just how on edge the players who move the markets are and why investors need to exercise as much, if not more, caution now as that required back in 2008-2009. The largest peace time monetary and fiscal crisis Europe has faced now ‘gyrates’ according to rumours and public relations exercises as opposed to action.
“People who spread rumours are like walking infections. The lying words from their mouths spread like disease from person to person. The only way to stop the disease is to keep your mouth shut.” – JOYCE HANSEN, One True Friend
Easing Us Into More Quantitative Easing
The UK (BOE) has recently eased by circa £75 billion, the ECB cannot, given its remit prevents it, the biggest bond dealers in the U.S. believe that the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy. This time by purchasing mortgage securities instead of Treasuries according to 16 of the 21 primary dealers of U.S. government securities that trade with the central bank interviewed in a Bloomberg News survey last week. JPMorgan is one of the five dealers who don’t forecast the Fed will begin a third round of asset purchases to stimulate the economy. The others are UBS AG, Barclays Plc, Citigroup Inc. and Deutsche Bank.
The Fed might buy about $545 billion in home-loan debt, based on the median of the 10 firms that provided estimates. Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter,
After cutting its target interest rate for overnight loans between banks to a range of zero to 0.25 percent, the Fed bought about $1.7 trillion of government and mortgage debt during QE1 between December 2008 and March 2010, and purchased $600 billion of Treasuries between November 2010 and June through QE2.
Europe Crisis
As European finance chiefs prepare to meet this week, and Italy seeks to raise as much as 8.8 billion euros ($11.7 billion) in bond sales, economists from Morgan Stanley, UBS AG, and Nomura International Plc say governments and the European Central Bank must step up their crisis response. Moody’s Investors Service said today the “rapid escalation” of the crisis threatens all of the region’s sovereign ratings. With only “one shot” to get it right, the ECB will await signs its price stability goal is under greater threat from economic weakness and concrete proof governments will ax their debts before it moves to cap yields with “big time” bond- buying, said Deutsche Bank chief economist Thomas Mayer.
“It’s too early to expect the ECB to jump in, but we are moving to a new climax,” Mayer said in an interview.
German Finance Minister Wolfgang Schaeuble said that European governments are struggling to enact a pledge to beef up the euro rescue fund, as he called for fast-track treaty changes to tighten budget discipline as the key to calming markets. Schaeuble again ruled out joint euro-area bonds or deploying the European Central Bank to fight the crisis, saying such a debate is conducted in “those countries that have to sort out their budget problems and chose to misunderstand that they have to make more efforts.”
“We must together set up institutions that secure trust in the euro,” he said. “Everything that detracts from that is damaging.” EU President Herman van Rompuy has been tasked with presenting EU leaders with proposals for treaty changes at their next summit in Brussels on Dec. 9, a spokeswoman for Merkel’s government said yesterday.
Market Overview
MSCI’s All Country World Index added 0.7 percent at 8:04 a.m. in London. Standard & Poor’s 500 Index futures rallied 1.8 percent, signaling the U.S. gauge may halt a seven-day losing streak. Treasury 10-year yields increased three basis points to 2 percent and the Dollar Index headed for the biggest decline in more than two weeks. New Zealand’s dollar strengthened 1.6 percent after Prime Minister John Key was re-elected. S&P’s GSCI Index of raw materials rebounded from a five-week low. S&P 500 futures expiring in December signal the equity index may rebound from a seven-day, 7.9 percent slump that was its longest losing streak since August. Retail sales totalled $52.4 billion during the holiday weekend and the average shopper spent $398.62, up from $365.34 a year earlier, the Washington- based National Retail Federation said yesterday, citing a survey conducted by BIGresearch.
The Dollar Index, which tracks the U.S. currency against those of six trading partners, dropped 0.5 percent, set for the largest slump since Nov. 11. The greenback slipped 0.1 percent to 77.68 yen and weakened 1.4 percent to 98.47 cents against its Australian counterpart.
The euro climbed 0.5 percent to $1.3298, rebounding from a four-week slump against the dollar. The 17-nation currency earlier rallied as much as 0.7 percent after La Stampa reported without saying where it got the information the International Monetary Fund is preparing a 600 billion euro ($799 billion) loan for Italy in case the debt crisis worsens. Two-year Italian note yields were 21 basis points higher at 7.87 percent, after reaching a euro-era 8.12 percent.
Market snapshot at 10:30 am GMT (UK time)
Asian markets rallied in overnight early morning trade, the Nikkei closed up 1.56%, the Hang Seng closed up 1.97% with the CSI closing up 0.13%. The ASX 200 closed up 1.85%. European bourse indices have rebounded strongly from their recent lows, the STOXX is up 3.67%, the UF FTSE is up 2.18%, the CAC is up 3.68%, the DAX is up 3.14% and the MIB is up 3.41%. Brent crude is up $2.47 a barrel, spot gold is up $31.31 per ounce. The SPX daily equity index future is up 2.27%. The EUR/USD has risen by 1.11%, cable is up 0.9%, the Aussie is up 2.28.
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