Light session as market focus remains on today's Eurogroup meeting at 1600GMT
Moody’s has downgraded the French sovereign credit rating from Aaa to Aa1
RANsquawk European Morning Briefing Video: http://youtu.be/mopFvYvI8ak
European equities opened lower today after Moody’s downgraded the French sovereign credit rating from Aaa to Aa1 late last night. This set the early direction in European markets although volatility slightly dissipated as attention turned to today’s Eurogroup meeting with positive news on Greece a possibility, despite the disbursement of aid not expected until December. Further optimism from the French press also halted major losses as an article in Les Echos noted that when France lost its AAA rating from S&P in January, the country was able to retain itself stable.
The yield on the French 10-year has gained just shy of 1 bps today after the news of the French downgrade, in comparison to the rest of Europe which has generally seen yields fall. This is also borne from the 10-year government bond yield spreads against Germany which shows widening for France and tighter spreads for the rest of the Eurozone.
In the energy complex, WTI crude futures are nursing minor losses, trading at USD 89.08, down USD 0.20 as markets are awaiting further developments on the conflict in Israel and Gaza.
Overnight, the Bank of Japan announced no new monetary easing steps and kept overnight call rate target unchanged at 0-0.1% by unanimous vote. It was largely expected the BoJ would stand pat on monetary policy with no additions to their asset purchase program and no rate change ahead of December 16th election.
EU & UK Headlines
Last night, Moody's downgraded France's government bond rating to Aa1 from Aaa and maintained a negative outlook. Key reasons behind the downgrade were that France long-term growth outlook hit by structural challenges and that the country has gradual and sustained loss of competitiveness. Moody's also noted France's exposure to the European debt crisis has been rising. Moody's said would downgrade France further if deterioration in economic prospects or difficulties in implementing announced reforms.
European equity markets opened lower today although the DAX now trades in positive territory and is outperforming other cash bourses in Europe before the Eurogroup meeting at 1600GMT later today. Large-cap stocks Deutsche Post, BASF and Volkswagen have all seen gains over 1% in early morning trade. BASF shares are trading higher after the news its Wintershall unit agreed a gas-supply deal for Germany. Separately, Hewlett-Packard beat EPS expectations pre-market and reaffirmed forecast for full-year 2013.
Elsewhere in Europe, other cash equities are trading in negative territory with many large firms nursing large losses. Fiat shares are trading down 5% today after TCI's Hohn said he was shorting Co. and that Co. needs massive capital injection.
Negative talk on Italian banks was also prominent overnight with Moody's says Italy's banking system outlook remains negative as adverse trends remain evident. Governor of the Bank Of Italy's Visco said banking regulator expects Italian bad loans to rise in H1 2013 and tells banks to cut branches, contain manager salaries and bonuses and follow careful dividend policies.
EUR/USD trades flat after choppy early European trade as a number of factors have given reasons for both strength and weakness in the EUR currency. Overnight the Moody's downgrade of the French sovereign weighed on the pair however this was seemingly shrugged off in early trade as French press suggested such a move would lead to a drive in competitiveness. Markets have also begun pricing in the Eurogoup meeting in Brussels today, where although here is no expectation of a disbursement of aid, market participants are beginning to feel optimistic that a decision of some sorts will be made.
USD/JPY has demonstrated minor JPY weakness this morning after the Bank of Japan left rates and asset buys unchanged, with markets now shifting their focus to the Japanese elections in December. The possibility of a government more supportive of easing is now beginning to be priced in, although this election results is still far from a majority consensus.
Ahead of tomorrow's Bank of England minutes from their latest MPC meeting GBP/USD is trading higher on the session, with GBP strength also notable in EUR/GBP which trade down 10 pips on the session so far. Markets are expecting a less dovish minutes this month after it was announced that coupon income from asset buys under previous QE operations will be transferred over from the BoE to the Treasury.
WTI crude futures are trading lower than yesterday's close as have surrendered some of the large gains seen yesterday. Volatility still remains after ongoing tensions in Israel/Gaza. Looking ahead, later on today the API will release their weekly inventories data at 2130GMT/1530CST.
Regarding the conflict in Israel, UN Secretary General Ban Ki-Moon will hold meetings today in Cairo to broker a ceasefire between Hamas and the country. The Israeli PM Netanyahu says he prefers diplomatic solution to Gaza conflict although did reiterate that Israel has a right to defend itself if talks were to fail. Contrary to reports yesterday, US President Obama said he has not asked Israel to to hold off on ground invasion of Gaza and believes Israel has right to make its own security decisions. Obama has said Hamas needs to end rocket fire and that Egypt can be a partner in helping to resolve the issue.
Print 12:58, 20 Nov 2012 - Economic commentary - Source: RANsquawk
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