Asia Open: Ratings Agencies Are At It Again

It looks like it is only a matter of time until France faces a downgrade of its credit rating, after Fitch joined the S&P and put the country on credit-watch negative. Fitch also downgraded the outlook for numerous other Eurozone countries, whilst at the same time stating it does not believe that the crisis can be resolved.

Asian traders are clearly nervous, with equity markets in the region starting the week in the red. Nevertheless, with the lack of major announcements due to be released during the session and the predicted lack of liquidity due to sidelined investors, risk currencies might be a little jumpy. So, we could see the aussie drift even further from parity and the euro might come close to the 1.30 level, but we don’t think it can sustain a break of this level without confirmation from Europe.

Themes:

• In New Zealand, NBNZ Business Confidence figures declined for the month of December, coming in at 16.9. This suggests that businesses in NZ are still optimistic, but the index has slipped from the near 50 figures we were seeing mid-2011. The kiwi initially slid a little on the news, before being overwhelmed by risk sentiment.

• Fitch downgraded the outlook for Belgium, Italy, Spain, Slovenia, Cyprus and Ireland, whilst at the same time putting the outlook for France on negative. Markets are now waiting for S&P’s decision on France, as the rating agency stated that it would make a decision on its credit rating after the EU summit.

• European finance ministers are set to meet at around 14:30GMT, with the meeting to be centred around the draft text of the new Eurozone fiscal compact, including the EUR200 billion of planned bilateral loans to the IMF; consisting of EUR150 billion from within the Eurozone and EUR50 billion from other EU nations.