Euro Falls After Moody's Downgrades Portugal's Rating
Online, July 6, 2011 (Newswire.com) - Yesterday's decision by Moody's Investors Service, one of the most influential credit ratings agencies, to lower Portugal's rating from BAA1 to BA2 has made it the second European country whose bonds are rated at "junk status." The long-term outlook was also lowered to "negative," which took its toll on the Euro. After fairly stable trading on Tuesday, it dropped from $1.4485 to $1.4350, triggering numerous stop orders at $1.4390. The surprising succession of such events is affecting the Euro zone's peripheral countries: an €8.7 billion payment from the EU for Greece to pay its debt is expected on the Eurobond market on July 9. Obviously, increasing differentials between bonds is to Portugal's advantage in particular, as well as to the advantage of the biggest Euro zone countries. Moreover, fears that the "Greek contagion" may spread to other Euro zone countries led to the first simultaneous monthly fall on the commodities, stocks, and bond markets since June 2009. Together with the Euro's fall came an increased demand for safe-haven assets, namely, the Swiss franc and gold. Both significantly increased against the dollar yesterday: the USD/CHF pair rose 0.8985% to 0.8400; gold rose by 2.10% to $1518.31 per troy ounce. As expected, together with the rise in safe-haven currencies, Deep Trust Trading analysts noted a simultaneous sharp fall of high-yielding yet risk-sensitive currencies: the AUD/CHF pair fell 0.94% and the NZD/CHF pair fell 0.98%.
Surprisingly, in spite of all the sell-offs of risky assets, oil still managed to avoid a drop and only experienced a slight correction from its 20-day high of $97.40/bbl to $96.60/bbl. Moody's also added more negativity to the market with its reports that China's national auditor cut the amount of available credit for local government authorities by about 3.5 trillion yuan ($540 billion). Deep Trust Trading analysts explain that this does not bode well for the outlook on China's overall economic development.
Nevertheless, Asian stock indices were boosted this morning by expectations of positive reports on company profits: the Taiwanese FTSE TWSE Taiwan 50 Index rose 43.45 percentage points, closing up 0.73%, while Tokyo's NIKKEI 225 Index was up 1.10%.
The Deep Trust Trading analytical department reports that some of the most important events to watch for today include the publication of data on the amount of building permits issued in Canada at 12:30PM GMT and data from the ISM Index in the US services sector at 2:00PM GMT.
Deep Trust Trading Analytical Department