11 rumours That Have Kept Markets Cartwheeling For The Last Two Weeks


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A series of rumours have had markets on an obstacle course for the past two weeks, with investors jumping back and forth on whatever piece of news hits the wires.The nauseating trail back and forth has left some dazed and confused.

So here’s your complete guide to each major rumour that has surfaced over the last two weeks — who said it, what happened, and whether it held even a shred of truth.

rumour #1: China was interested in buying Italian bonds.

It all started with a Bloomberg blast on September 13 saying that China might buy Italian bonds. Markets soared. The blast cited an FT article which no one could find online. The FT also denied that it had published such an article. Markets tanked.

We got to the bottom of this, establishing that the Bloomberg reporter responsible for the report had seen a preview of an FT article on the topic. That article was published later in the day, citing meetings between Italian and Chinese officials.

DENIED: China was NOT interested in buying Italian bonds.

The next day, Reuterscited Italian officials who said the talks centered around Chinese industrial assets, not bond purchases. The markets seemed unfazed by this news.

What was indeed true about this rumour is that the BRICS countries were about to talk about how to handle the crisis, and what -- if any -- action they might stand behind.

rumour #2: BRIC countries will consider bailing out Europe.

A report that the BRICs would consider bailing out Europe made markets happy on September 13. Initially fed by a report in a Brazilian newspaper citing an unidentified source, Brazilian Finance Minister Guido Mantega all but confirmed rumours when he told reporters, 'We're going to see what we can do to help the European Union get through this situation.'

FAIL: BRIC countries are going to leave a Europe bailout to the G20.

This rumer seems to have had merit.

While the BRICS (Brazil, Russia, India, China, and South Africa) do seem to have considered supporting Europe during the joint World Bank/IMF meetings last week, they ultimately decided that this was a task for the G20 and not emerging markets alone.

rumour #3: BNP Paribas could no longer get dollar funding.

On September 14, an opinion piece published in the WSJ cited an anonymous source at the bank who said, 'We can no longer borrow dollars.'

Here's a snippet of that article:

'We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore,' a bank executive for BNP Paribas, who declines to be named, told me last week. 'Since we don't have access to dollars anymore, we're creating a market in euros. This is a first. . . . We hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore.'

DENIED: BNP Paribas actually CAN get dollar funding.

The bank quickly denied these allegations, which immediately sent the bank's stock -- and those of other French banks -- in a tailspin.

The bank later announced later that it would investigate the article, even though it made back stock losses later in the day.

rumour #4: Austria had ruled out the EFSF.

A rumour that Austria had ruled out expansion of the European Financial Stability Facility surfaced on September 14, started by a Bloomberg blast.

The market immediately dove.

DENIED: Austria has NOT ruled out the EFSF.

Clearly, however, investors jumped to the wrong conclusion. What had in fact happened was that the Austrian council had delayed the vote, not ruled it out.

While an attempt to fast-track the bill failed, the WSJ reports that the bill is likely to pass a parliamentary vote September 30 after being rubber-stamped by the parliament's finance committee today.

rumour #5: euroTARP and euroTALF

Hopes for a eurozone program similar to the TARP project used to recapitalize banks in the U.S. have gained traction in the news media, and were outlined in a series of investor reports around September 15.

Discussion of leveraging the EFSF began around then too, which we compared to euroTALF.

This rumour is still somewhat up in the air. More on this later.

rumour #6: EU officials would speed up bank recapitalizations.

Last week, an FT report citing a French official said that EU officials were about to speed up bank recapitalizations for 16 banks that had failed or were on the verge of failing bank stress tests conducted in July.

The report led to a spike in the Dow.

DENIED: EU officials had NO PLAN to speed up bank recapitalizations.

The next day, however, European spokesman Oliver Bailly refuted claims that was some grand plan to recapitalize the banks, killing hopes of euroTARP and sending French bank shares tumbling.

Bailly reiterated EU leaders' earlier assertions that bank capitalizations would --at least at first -- be attempted by the banks themselves.

rumour #7: EU governments may speed up plans for a permanent bailout fund.

On September 23, Bloomberg reported on a staff report calling for a far more rapid implementation of a permanent European Stability Mechanism -- the eventual successor to the EFSF -- than planned.

EU leaders had previously planned to implement the ESM by July 2013, but the report said they might expedite that process to set the mechanism in place a full year in advance.

NEITHER DENIED NOR CONFIRMED: EU governments may speed up plans for a permanent bailout fund.

We don't doubt that such a paper does exist, but EU leaders were quick to say they would not pursue any proposals to implement the ESM until the EFSF had been put into place.

Huge hurdles still remain in the undertaking of such a venture, in particular a recent German Constitutional Court ruling that prohibits such a structure.

rumour #8: ECB will cut rates.

Early this week, Bank of America said that the ECB might cut rates by 50 bps at its meeting early next month.

Other analysts and experts quickly followed suit, predicting much the same thing.


ECB members have come out on both sides of this rumour. Member Yves Mersch said that inflation alone would dictate market decisions, but another member, Ewald Nowotny, said that the possibility of a rate cut could not be excluded.

Since central banks rarely let the markets know of new decisions ahead of time, there may be a shred of truth to the rumour that the ECB will cut rates in October, though perhaps not by the full 50 bps BofA suggested.

rumour #9: Germany and France are getting together a big new plan to save the euro.

On Sunday, a Telegraph report surfaced saying that German and French officials had been meeting during the World Bank/IMF meetings over the weekend to plan a new big eurozone 'bazooka' that would stem the sovereign debt crisis.

According to the report, the plan had two parts:

- Tens of billions of euros would be used to recapitalize European banks. This would prevent contagion from spreading in the event of a Greek, Irish, or Portuguese default. We heard whispers about a plan like this last week.

- Leveraging the EFSF in order to expand the resources available to bolster Italy and Spain. U.S. Secretary Timothy Geithner proposed such a euroTALF-like solution earlier this month, and EU Economic and Monetary Affairs Commissioner Olli Rehn said eurozone leaders are considering this possibility this weekend. This piece of the plan assumes passage of the EFSF expansion proposed July 21.

WHO KNOWS?: Confusion surrounds reports of Germany and France getting together on a big new plan to save the euro.

We started hearing major denials of the plan not long after, from German Finance Ministry spokesman Mark Kotthaus, Dutch PM Mark Rotte, German Finance Minister Wolfgang Schaeuble, and most recently German Vice Chancellor Philipp Rösler. However, Merkel's talk of instituting a 'firebreak' around Greece nonetheless seems promising.

The Telegraph reported that such a plan would likely surface by the G20 summit on November 4, so we still don't know whether this report holds merit.

Markets went soaring after CNBC's Steve Liesman broke this story yesterday. According to his report -- citing yet another unnamed top EU official -- a well detailed plan to save the euro had already been laid out, and was indeed awaiting the approval of EU governments.

Here's what this plan evidently consisted of:

- Some EFSF funds would be used to recapitalize banks.

- Other EFSF money would be used as seed money for the European Investment Bank.

- This bank would be used as a special purpose vehicle (SPV) and would issue bonds and purchase sovereign debt.

According to the CNBC report, the plan would be revealed once July plans to expand the powers of the EFSF had been approved.

The European Investment Bank released a statement today, saying that it had not been approached about such a plan and had no plans to be involved in it.

This seriously undermined CNBC's report, as it would be highly unlikely that the EIB would not be informed about a plan it was meant to participate in.

Regardless, markets and analysts seem convinced that some kind of EFSF expansion will soon be announced, regardless of numerous denials by European officials.

DENIED REPEATEDLY: rumour #11: Merkel and Sarkozy have ALMOST NEVER about to speak suddenly and with little warning.

This rumour has become a theme lately.

Markets went nuts over news that German Chancellor Angela Merkel and French President Nicolas Sarkozy would give a big announcement on September 13. That soon came to naught and markets dove again.

This same rumour resurfaced yesterday near the end of the market day in Europe, arguably bolstering stocks. Nothing happened, disproving the rumour.

We wonder when traders will stop believing these rumours.

Need some more clarity on where the eurozone debt crisis is going?

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