FTSE rallies 2% on IMF Italian aid speculation despite denial

<p>Speculation in the Italian press that the country was close to securing up to €600 billion worth of funding from the IMF to help shore […]</p>

Speculation in the Italian press that the country was close to securing up to €600 billion worth of funding from the IMF to help shore up the country’s finances was enough to trigger investors to buy into stocks on Monday, despite denial from an IMF spokesman that the talks were taking place.

The FTSE 100 rallied over 2% in early trade as a result of the IMF speculation, with investors buying strongly into mining, banking and insurance stocks – three stock sectors strongly sold off during the previous nine-day FTSE losing streak.

Clearly there is some optimism that with the IMF visiting Rome this week, some progress could be made in terms of helping the indebted nation face up to its debt crisis. However, given the stringent denial that talks had taken place to secure a large funding facility for Italy from the IMF, it’s hard to envisage that everyone is buying into the market today purely on expectations that the IMF spokesman is lying .

With stocks having been sold off aggressively over the past 10 days, investors may just be looking for an excuse to bargain hunt and the report in Italian newspaper La Stampa about a potential funding facility seems to have given investors the excuse they needed. This, along with some degree of optimism that with Germany and France exploring proposals to speed up fiscal consolidation within the eurozone and Tuesday’s meeting of eurozone leaders should see a ratification of the mechanics behind the EFSF, is helping to convince investors to buy into the markets, at least in the short term. It is hoped that with the mechanics now visible, this could help Europe’s leaders to better source outside fiscal investment into the fund itself, where previous efforts have failed.

There remain question marks over the longevity of today’s strong rally. We have an intensive calendar of economic data out this week, culminating in Friday’s non-farm payrolls and with uncertainty still raging over the eurozone debt situation and Italian 10-year bond yields still stubbornly over the 7% unsustainable mark, this could entice investors into locking in their gains early.

Thomas Cook shares rally over 35%
Shares in Thomas Cook continued to bounce back, rallying 35% today after the travel firm confirmed to shareholders that it had secured a new lending facility with its creditors that doubles the amount available to it from their previous agreement. The new facility of £200 million ‘significantly improves the robustness of the group’s financial position’ and buys the board some much needed time to turn the business around, given the severe headwinds the travel firm is facing. The deal also provides some much needed clarity to shareholders and immediately removes much of the uncertainty over the ability of the firm to remain in business, giving shares a strong lift as a result.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.