France No Longer Perfect
January 16, 2012 | 07:29 AM
Posted by David Mason
The Euro is stumbling out of the gate this morning, down against the Pound, greenback and the Japanese Yen. The EUR/USD is down by 0.27% and is currently trading at 1.2644. The EUR/JPY fell by an even greater amount, trading at 97.14 after dropping 0.43%. The EUR/GBP is trading at 0.8261 and is expected to encounter resistance at around 0.8377. The USD/JPY and the USD/CAD are also down this morning, trading at 76.83 and 1.0227.
Draghi Speaks Today
ECB President Draghi will report to the European Parliament’s Economic and Monetary Affairs Committee in what usually results in volatile behavior in the markets as traders attempt to deduce potential interest rate changes. Two important stats were released this morning in Australia. Home Loans came in at 1.4% increase, which is 0.4% higher than anticipated. The ANZ Job Advertisements was also released today, with minimal change from the previous month.
French rating no longer perfect
Standard & Poor’s did not follow the lead of their counterparts at Fitch and downgraded the French rating. This is the first time in France’s history that the country has lost its perfect score and has caused much annoyance and embarrassment. French President Nicolas Sarkozy downplayed the importance of the new credit rating and attempted to portray a position of business as usual. His rivals however, were quick to point out that French fiscal policy has been a disaster for an extend period of time and this rating cut was inevitable. The Euro is down this morning against all major currencies.
Market uncertainty causes gold to rise
Risk appetite appears to have declined over the past few days as European turmoil surrounding the cut of the French rating is making some traders uneasy. Gold is up this morning by 0.57% and trading 1640.15 in part due to investor uncertainty about the short term future of the markets. Silver is up as well, trading at 29.693, an increase of 0.58. Crude oil is up slightly this morning, trading at 99.06 USD per barrel.
U.S. Stocks down due to French downgrade
Wall Street responded negatively to the French credit cut, with the Dow Jones Industrial, Nasdaq Composite and S&P 500 down by about 0.4%. Most major indices are on the decline this morning in Asian trading, with the DAX down 0.58%, the UK 100 down 0.46% and the Japan NI255 down 1.63% and trading at 8361.50.
France not the only victim
The French rating cut to AA+ with a negative outlook was just the tip of the iceberg for the troubled single currency. Austria also dropped to AA+, while Finland, Netherlands and Luxembourg were put on negative watch, but retained their AAA rating. Spain, Italy and Slovkia were also downgraded. France is scheduled to sell 11 billion USD in debt in the next two days and the credit cut is not expected to impact bond yields in such a short amount of time. The Euro is down over the last several weeks and this trend is expected to continue. The one positive note for Europe is the German credit rating which remained at AAA and given a stable outlook. It will be interesting to see if European fiscal and monetary policy changes over the coming weeks and months in response to this set back.