Sentiments Weighed Down by S&P Warning, Aussie Lower on RBA Cut

Market sentiments in Asian are weighed by S&P put 15 Europeans countries on review for possible downgrade. This time, even Germany and France may lose their AAA ratings subject to the result of this week's highly anticipated EU summit. S&P warned that ratings of Austria, Belgium, Finland, Germany, Netherlands and Luxembourg might be cut by one notch which others could be lowered by two notches. S&P noted that this week's EU summit is "an opportunity for policymakers to break the pattern of what we consider to have been defensive and piecemeal measures to date... and advance a credible response to the crisis that would go far towards restoring investor confidence." But, S&P warned that "if the response of policymakers is not viewed by investors as robust, we believe market confidence could take another, possibly steep, drop downwards" and force downgrades.

German Chancellor Merkel and French President Sarkozy issued a joint statement yesterday to called for European leaders to agree on stricter rules for fiscal discipline. "Merkozy's" proposal include rewrite of the EU treaty to set up uniform tough budget standards across the eurozone. They called for a "reinforced and harmonised golden rule" on deficits. They aim to "conclude between the 17 members of the eurozone in march" and urged prompt actions. The proposal would be detailed in a letter to EU president Van Rompuy on Wednesday.

Australian dollar is also lower after RBA rate cut. In line with market expectations, the RBA lowered the cash rate for a second consecutive month, by -25 bps to 4.5%, amid worries that the financial turmoil in Eurozone would further drag down economic conditions in Australia. The slowdown in Chinese growth would also reduce demand of Australia's exports. Policymakers believe that growth will be about-trend while inflation will remain within the target range of 2-3%. More in RBA Cut for Second Consecutive Month.

BoJ provides dollar for the first time since last week's join central action. The bank said it got all bids for $25m seven-day dollar loans, the largest since market, with rate at 0.6%. That's significantly higher than the $1m in bids for seven-day dollar loans back on November 29 at rate of 1.08%. Though, some economists played down the significance for the surge in demand and note that it's mere reflecting that Japanese banks are experimenting with the scheme. The amount, which is five times the total amount BoJ offered in four operations in November, doesn't indication funding strains.

On the data front, UK BRC sales monitor dropped -1.6% in November. Swiss CPI, and Eurozone GDP revision will be the main focus in European session. BoC will also announce rate decision today and is expected to keep rates unchanged at 1.0%. Canada will also release building permits and Ivey PMI.