Moody’s downgrade sweeps away gains after Greek deal, European stocks slip
German Chancellor Merkel rings a bell before to a party meeting on Feb 13. Europe is cautious about whether Greece will manage to implement a Germany-backed austerity package. AFP photoEurope’s main stock markets dropped yesterday after Moody’s cut ratings on six European nations and placed three others -- including France and Britain -- on negative outlook due to the eurozone crisis.
London’s FTSE 100 fell 0.28 percent to 5,889.17 points in early trade, Frankfurt’s DAX 30 shed 0.06 percent to 6,742.48 and the Paris CAC 40 dipped 0.24 percent to 3,376.48 points.
In foreign exchange deals, the European single currency slipped to $1.3170 from $1.3191 late on Monday in New York.
European shares had rallied a day earlier after Greek lawmakers approved disputed austerity measures that mark a key step to obtaining crucial European Union and International Monetary Fund aid for the debt-laden eurozone member.
“Just as fears subsided on Monday (Feb. 13), following the news on satisfactory austerity measures ratified by Greek parliament, another round of Moody’s downgrades and outlook warnings for some of the EU countries took the wind out of the equities’ sails,” said trader Anita Paluch at Gekko Global Markets.
“This does not, however, come as a total surprise, as Moody’s merely follows similar moves done already by S&P and Fitch last month.
“But Greece still remains in the background since the bailout still needs the EU approval and Germany and other nations are not entirely convinced the country could carry out all necessary actions as demanded by the creditors.”
Overnight, Moody’s chopped the debt ratings of Italy, Spain and Portugal and put top Aaa rated France, Britain and Austria on warning, arguing that they were increasingly vulnerable to the long-running eurozone crisis.
Austria, France and Britain were all put on negative outlooks -- a warning that if conditions worsen they could be hit with full downgrades.
“Moody’s rating downgrades and negative outlooks for the UK and eurozone will likely dominate market sentiment first thing,” said VTB Capital economist Neil MacKinnon.
“There are still plenty of uncertainties surrounding an early resolution of the Greek crisis too.”
Asian markets were mostly lower yesterday after Moody’s action.
The move came after Greek lawmakers pushed a package of austerity cuts late on Feb. 12, with Premier Lucas Papademos saying the measures were “the country’s only hope” to avoid economic meltdown and secure another bailout.
European finance ministers will meet today in Brussels to sign off on the Greek deal necessary for a Europe-sponsored rescue package, followed by an offer to private sector holders to write-down by about a half their holdings of Greek government bonds.
“Moody’s adjustment of sovereign debt ratings really took the shine off the positivity seen in the markets yesterday amid the news from Greece,” said broker Owen Ireland at Valbury Capital.