IMF Rumour Denied, Rebound Remains

EUR 600 bln IMF loan rumor denied; Italian business confidence higher; German GfK consumer confidence rose; UK CBI sales decline; OECD calls for action and expects further QE by BOE. Market turns to October new home sales and Dallas FED manufacturing. Added charts & commentary to Intermarket Insights.

Markets saw a complete reversal of sentiment since Friday. The greenback was sold across the board and riskier assets show significant gains. NZD, CHF and GBP are the relative strength winners. Major European equity indices rose 2-2.5%.

Risk rally was sparked by earlier reports that the IMF is preparing a EUR 600 bln loan for Italy. This news was later denied by the IMF spokesperson that confirmed that the IMF is not in discussions with Italian authorities. Despite the denial, EURUSD holds most of the gains and trades near 1.3370 after reaching 1.3398.

On the European data front, Italian business confidence improved slightly in November from 94.2 to 94.4 and German GfK consumer confidence rose to 5.6 from previous 5.3.

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Even though the common currency is strengthening, the Italian 2 year yield continues to rise and for the first time crossed above the 8% level. The high so far has been 8.12% but reports of ECB buying have helped to push yield back below 8% towards 7.2%.

The OECD called for an action to boost global economy after it lowered world growth projection for 2012 to 3.4% from 4.6%. The US growth estimate was lowered to 2% from 3.1% and Eurozone GDP is seen to grow only 0.2% in 2012. The OECD has also noted that further QE by the BOE is warranted and estimates that the BOE will buy GBP 400 bln of debt.

CBI reported sales declined to -19 in November from -11 in September which is the weakest result since 3/2009. Reported orders dropped -25% and expected sales for December are seen at -6%. The GBP is holding onto its gains and trades around 1.5575

The economic calendar for the NY session is short today as it includes October new home sales due at 10:00 am ET that are expected to remain at 313K and November Dallas FED manufacturing due at 10:30 am seen higher at 5.0 from previous 2.3.