New York - European and Wall Street stocks slipped and the euro fell on Monday on concern about revised bailout plans for Greece and other eurozone countries, while commodity markets recovered partially from last week’s rout.
Concern that Greece may be forced to restructure its debt pushed eurozone officials into talking about lowering the interest rates on the European Union-International Monetary Fund bailout plan for Greece and possibly Ireland also over the weekend.
Meanwhile, Standard and Poor’s (S&P) cut Greece’s credit rating to B from BB- on Monday, dragging it further into junk territory over concerns that a debt restructuring is increasingly likely.
“In our view, there is increased risk that Greece will take steps to restructure the terms of its commercial debt, including its previously-issued government bonds,” S&P said, warning that more downgrades could come.
S&P said Athens may have to reduce the principal by 50% or more. Yields on Greek and Portuguese debt rose, with five-year Greek paper offering around 22%.
The S&P news pushed European stocks lower, with the FTSEurofirst 300 stock index down 0.5%. Banks, which are seen as exposed through Greek bond holdings, led the way down.
“This has potential to disrupt the market in the near term as it looks increasingly likely that we will see another adjustment package for Greece,” said Klaus Wiener, chief economist at Generali Investments.
The MSCI all-country world stock index was down 0.7%. The JSE also closed weaker, in line with global market and the rand followed the euro softer.
Wall Street stocks slipped early but were little changed midmorning with the Dow Jones industrial average up 0.19%. The Standard &
Poor’s 500 Index rose 0.20% and the Nasdaq Composite Index added 0.19%.
The euro recovered from last week’s steep drop, but nervousness around sovereign debt muted gains. The rebound in various commodity prices after their rout last week also helped to pull up the euro from a three-week low.
The euro was slightly weaker in mid-morning New York trade at around $1.4283, after falling 3.0% last week.
Bargain hunting also helped oil prices rebound with Brent crude futures up $2.83 to $112.22 a barrel, following last week’s 12.8%slump. Spot silver rose to $36.91 after bearing the brunt of last week’s commodity sell-off.