Ratings agencies keeping an eye on European countries

Asian shares are expected to open higher but will be dented by news from S&P that it has placed 15 Euro nations on credit watch for a potential downgrade. This includes Germany and France which might be stripped of their AAA credit rating once the review is finalised.

While credit rating changes have previously been absorbed by the market, the U.S. being the best case, it does signal the slowdown in Europe and impact it will have on Asian manufacturing volumes.

We are still eyeing the response from China as policy makers meeting later this week to decide the appropriate monetary measures for 2012. The Euro fell below 1.34 below the U.S. dollar on the news.

Metals markets responded to the S&P news with copper down around 0.8% immediately after the reaction. A failure to break US$3.60/lb could see another fall towards last week’s levels but for now copper seems well above the US$3/lb physiological level which we don’t think will be tested in 2011. The U.S. market closed in positive territory before the downgrade was officially announced with the S&P500 up around 1% at its close.

The Australian dollar was slightly higher, buying 1.0261 U.S. dollars ahead of the Reserve Bank’s meeting today on rates. The market is expecting another 25 basis point rate cut.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.