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Markets dip as Moody's spooks Europe

Feb 14 2012 07:47 Reuters

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Tokyo - Shares and the euro fell on Tuesday after Moody's warned it could downgrade top-rated sovereigns including Britain, reminding investors that Europe is still deeply mired in a debt crisis despite Athens' steps to avoid a disorderly default.

European shares were expected to remain subdued, with financial spreadbetters expecting Britain's FTSE 100, Germany's DAX and France's CAC-40 to open between minus 0.1% to plus 0.1%.

The Bank of Japan surprised the markets by loosening monetary policy further, boosting its asset buying and lending scheme to add more liquidity as it bowed to political pressure for bolder action to beat deflation and support the economy.

MSCI's broadest index of Asia Pacific shares outside Japan shed as much as 0.9%, and last stood down 0.5%. Japan's Nikkei, on the other hand, turned positive to rise 0.7% after the BOJ's announcement.

The euro was down 0.2% at $1.3166 and the British pound shed as much as 0.6% to $1.5707, after ratings agency Moody's said it may cut the AAA ratings of France, Britain and Austria, while downgrading Italy, Portugal, Spain, Slovakia, Slovenia and Malta..

"Asian markets actually followed the news about downgrades in those European countries, as markets realised there is no resolution yet and revived worries over the European problem," said Frances Cheung, senior strategist for Asia ex-Japan at Credit Agricole CIB in Hong Kong.

"The negative outlook to the UK, which was previously quite immune because it is not a member of the eurozone, also created a little bit of concern, because it seems it is affected."

The Moody's announcement weighed on market sentiment which was already weak, worrying about Athens' ability to pursue harsh reforms in exchange for crucial aid, as relief over parliamentary passage of the bill faded while intensifying violence across the country underscored the tough challenge the government faced.

The bill's passage was only one of the three conditions for granting a new €130bn bailout, a lifeline for Greece to ride out a major bond redemption on March 20.

Europe gave Greece until Wednesday, when eurozone finance ministers are expected to meet, to specify how €325m of the €3.3bn demanded in budget savings will be achieved and to give a written commitment to implement the terms of the deal.

Provided there are no further setbacks at the EU meeting on Wednesday, terms of a bond swap deal with private bond holders to ease Greece's debt burden would then be announced.

"Market uncertainty remains high, since a number of steps remain to ensure that there is no disorderly default in the near term," Barclays Capital said in a note, adding that Greek parliamentary elections in April would make implementation risks of the austerity measures particularly challenging.

BoJ strikes

The BOJ expanded its scheme under which it buys government and private debt and lends cheap funds against various types of collateral, by ¥10 trillion to ¥65 trillion, with the entire increase in long-term JGBs.

The yen fell 0.5% to ¥77.96, its highest in nearly 3 weeks, while 10-year Japanese government bond futures surged and cash bond yields fell.

"The market consensus was that the BOJ would stand pat given its relatively favourable view on the economy's outlook and stabilising markets," said Junko Nishioka, chief Japan economist at RBS Securities in Tokyo.

"It was probably a case of the BOJ easing as a precaution against future risks before they materialise as part of cooperation with other central banks," she said.

Turn off risk

US crude eased 0.4% to $100.51 a barrel on Tuesday, reversing from Monday's 2.3% surge when Greek news and concerns about supply disruptions from tensions between Israel and Iran supported prices. Brent fell 0.6% to $117.20.

Gold slipped 0.4% along with the slide in the euro and equities, to stand at $1 716.30 an ounce.

Asian credit markets weakened, with the spreads on the iTraxx Asia ex-Japan investment grade index widening by 3 basis points.

While Greek woes were far from being resolved, the progress towards a solution and expectations for another round of huge liquidity injections from the European Central Bank later this month kept some degree of risk positive sentiment intact.

Italian 10-year yields have so far this year shrank by more than 150 bps as sentiment improved, but the eurozone's lower-rated sovereign debts will face a test of investor confidence when a slew of auctions get underway this week, including Italy, Spain and France.

 
 
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It pays to know the cost and what you’re getting in return
May 28 2012 09:33

Investors may not have a clue what they’re paying their money managers or they type of service they’re getting, or, whether they can actually negotiate lower fees. (Reuters)

Sasha

"In the short term this is true, Greece will dominate the headlines on a day to day basis, until their next elections when there would be some clarity to answer the question, "What next for Greece?" Amazingly everyone except the politicians seem to be lining themselves up for worst case scenario, b... Read their blog...

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