By Stephen Kirkland and Rita Nazareth - Dec 6, 2011 10:57 PM GMT+0700
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Traders work on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Jin Lee/Bloomberg
Dec. 6 (Bloomberg) -- Timothy Moe, a Hong Kong-based strategist at Goldman Sachs Group Inc., talks about the outlook for Asian stocks and Europe's sovereign debt crisis. He speaks from Singapore with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
French, Spanish and Austrian bonds fell after Standard & Poor’s said it may cut the credit ratings of 15 euro nations and the European bailout fund. U.S. equities fluctuated and the euro trimmed most of an earlier loss.
The yield on France’s 10-year bond jumped 11 basis points to 3.23 percent at 10:56 a.m. in New York, with similar- maturity Spanish and Austrian debt increasing at least six points. Rates on notes issued by the bailout fund maturing in July 2016 increased eight points to 2.42 percent after dropping for six straight days. The Stoxx Europe 600 Index lost 0.1 percent and the S&P 500 was little changed. The euro weakened 0.1 percent to $1.3383 after slumping as much as 0.5 percent. Silver, gold and cocoa led commodities lower.
Germany, France and four other nations may lose their AAA credit ratings depending on the result of a summit of European Union leaders on Dec. 9, S&P said yesterday. S&P said today the rating of the European Financial Stability Facility may also lose its top rating. European Central Bank President Mario Draghi will probably cut the benchmark interest rate a quarter point to buoy the economy when policy makers meet Dec. 8, according to 58 economists in a Bloomberg survey.
“The European crisis is an on and off switch,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $44 billion, said in a telephone interview. “While the market was not overly shocked by the S&P announcements, they do create a sense of urgency for European leaders. The good news is that they are coming up with proposals, but that also raises questions on whether they will be in fact able to deal with them.”
The EFSF risks losing its top credit rating if any of the fund’s six guarantors are downgraded from AAA, S&P said today. The ratings company may affirm the AAA rating on the EFSF and its issues if the ratings on the six guarantors are maintained.
German Finance Minister Wolfgang Schaeuble said today that the downgrade warning yesterday will help force Europe to ratchet up efforts to resolve the two-year old fiscal crisis this week.
The extra yield, or spread, investors demand to hold the French securities instead of bunds, Europe’s benchmark government securities, increased 12 basis points. Yields on Dutch 10-year debt increased 2.6 basis points and Austrian rates increased five points. The Portuguese-German spread narrowed 34 basis points, while the yield on Ireland’s October 2020 security fell six basis points.
Bond Risk
The cost of insuring against default on European sovereign debt rose for the first time in seven days, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments climbing seven basis points to 327.
The Swiss franc declined 0.6 percent against the euro and slid 0.7 percent versus the dollar after a report showed that consumer prices in the nation fell the most in more than two years last month, led by lower costs for imports, adding pressure on the Swiss National Bank to raise its franc ceiling to protect the economy.
Lower Rates
Australia’s dollar dropped 0.4 percent against the U.S. currency after the nation’s central bank reduced its benchmark interest rate for a second straight month as Europe’s debt crisis threatens to slow exports.
The Stoxx 600 earlier dropped of as much as 0.8 percent. RWE AG, Germany’s second-largest utility, tumbled 7.2 percent after announcing a share sale to raise about 2.1 billion euros ($2.8 billion). Yara International ASA gained 7 percent as the maker of nitrogen fertilizer affirmed its policy of returning cash to shareholders.
The MSCI Emerging Markets Index (MXEF) fell 1.4 percent, snapping a six-day, 10 percent rally. The Hang Seng China Enterprises Index (HSCEI) slid 1.5 percent after Fitch Ratings said a Chinese property-price correction will lead to worsening loan portfolios while Nomura Holdings Inc. cut its estimate for China’s economic growth next year to 7.9 percent from 8.6 percent.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net
To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net
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