S&P Places Most Of Europe On Negative Outlook

No less than 15 members of the struggling Eurozone have been put on CreditWatch with a negative outlook, including Germany and France. Unsurprisingly risk appetitie is off this morning with European equity futures off 1-1.5 percent and EUR/USD trading 60 pips lower.



Standard&Poor's goes to work in the Eurozone: The ratings agency, S&P, announced late yesterday that 15 countries have been given a negative outlook due to five reasons, including tighter credit conditions, higher risk premiums, high level of indebtedness both household and governmental, and recession risk. Hence even the more healthy countries such as Germany and Finland are now at 50 percent risk of a downgrade from AAA once the review has been completed after the December 9 EU Summit while France could slip a full two notches. Or, in the words of the S&P: "We expect to conclude our review of eurozone sovereign ratings as soon as  possible following the EU summit scheduled for Dec. 8 and 9, 2011... Depending  on the score changes, if any, that our rating committees agree are appropriate  for each sovereign, we believe that ratings could be lowered by up to one  notch for Austria, Belgium, Finland, Germany, Netherlands, and Luxembourg, and  by up to two notches for the other governments.

Eurozone GDP to show growth in third quarter, but a recession is looming: The revised 3Q'11 GDP will be released today and is expected by consensus to show an unchanged growth rate of 0.2 percent quarter-on-quarter (QoQ), or 1.4 percent year-on-year. Though 0.2 percent QoQ is nothing to brag about, it is at least positive growth. The same cannot be said for the current quarter where we expect growth to slip into negative territory and with 1Q'12 also likely to show negative growth the recession is not far away. The current weakness of the Eurozone economy is captured by the PMI Composite Index, which points to GDP growth of -0.5 percent through November.



Other data coming up: German factory orders, a leading indicator of tomorrow's Industrial Production, are expected to rise 1 percent in October according to consensus after a couple of weak performances, including a horrible -4.3 percent print in September. The Bank of Canada will announce rates though nobody (neither we nor a 26-person survey) expect a change to the 1 percent rate.