Investor News
Markets fall sharply as Moody’s Investor Services scorns EU crisis plan
December 13, 2011 by Editor · Leave a Comment
Global stocks and the euro slid yesterday as investors took a dim view on whether last week’s plan to enhance fiscal discipline in the euro zone was enough to quell its two-year-old debt crisis.
European stocks fell and borrowing costs for Italy and Spain rose after Moody’s Investors Service said it would review ratings for countries in the zone.
Standard & Poor’s last week placed the ratings of 15 euro nations on review.
Moody’s said yesterday that the European Union (EU) summit last Friday failed to produce “decisive policy measures” to end the euro zone’s debt turmoil.
“The (summit’s) communiqué offers few new measures, and does not change our view that risks to the cohesion of the euro area continue to rise,” Moody’s weekly credit report said yesterday.
“As we announced in November, unless credit market conditions stabilise in the near future, our ratings of all EU sovereigns will need to be revisited.
“The communiqué does not change that view, and we continue to expect to complete such a repositioning during the first quarter of 2012.”
Last night, Fitch Ratings said the summit had failed to provide a “comprehensive” solution, increasing short-term pressure on euro-zone sovereign ratings.
Initial market enthusiasm for the summit’s plan faded due to legal uncertainty surrounding the pact and the absence of a sufficiently strong financial backstop for the single currency.
The euro fell 1,1% yesterday the most in two weeks against the dollar as investors sought safer assets. The dollar and the yen strengthened against most of its traded counterparts.
In the run-up to the summit, there had been increasing hope that the market panic could finally be brought to an end. “The hopes have been disappointed,” Christian Schulz, senior economist at London-based Berenberg Bank, said in a note yesterday.
US stocks dropped yesterday, with bank shares among the worst performers, and the S&P financial sector down 2,7%. An index of European bank stocks fell 2,8%.
“How European banks are trading and how Italian and Spanish bonds are trading are the two things that drive how we open every day,” said Jack de Gan, chief investment officer at Harbor Advisory in New Hampshire.
Italian 10-year bond yields have increased by almost 70 basis points since last Wednesday, reaching almost 6,7% yesterday. Spanish yields have climbed by 50 basis points to 5,9%.
Fears that the debt crisis will persist into the new year led to a sell-off in emerging-market assets and metal markets yesterday.
The JSE all share index fell for a third consecutive day, down 1,1% to its lowest level since the end of last month. The rand lost 2% against the dollar yesterday as jittery investors dumped emerging-market currencies.
Copper prices fell on speculation that a slowdown in China’s industrial output will increase stockpiles and fan the debt crisis. Other metals such as aluminium also came under pressure.
The gold price fell by 2,8% to its lowest level since the last week of October.
Source: Business Day Reuters, Bloomberg, with Ron Derby.
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