European markets are strong this morning supported by news that the EU leaders have reached agreement on leveraging the EFSF European Emergency Funds. European Council president Herman Van Rompuy said that he will present a “roadmap” for the plan to EU heads of state at the council’s next meeting on Dec. 9.
Investors are starting to see direction and leadership. Although, this morning, ratings firm Standard & Poor’s stated they could downgrade the outlook on France’s AAA sovereign debt rating to negative within 10 days. Meanwhile, Moody’s said it may cut subordinated debt ratings on some European banks, because it’s concerned by the increasingly limited financial flexibility of many European sovereigns.
The agencies also warned that the US could face further downgrades if they do not reach an agreement to handle the US debt crisis before the end of the year.
Stocks and Bonds are diverging today, which is starting reflect changes in the markets. Although investors are relaxing now that it seems that the EU will pull out of the current debt problems. Many large institutional investors and brokers are quietly moving their portfolios out of Europe and back to the US, and specifically, into companies who are not exposed to European debt or a slowdown in the EU economy.
In the present, the dollar has been increasing in relation to the world’s currencies as it is considered that the U.S. economy continues to show slow growth in light of the most recent OECD report. Europe’s debts and the possibility of defaults have investors worried, the recent report from the OECD and the Bank of England indicate the onset of a deeper and prolonged recession and a contraction of growth. The dollar has shown strength as a result, as economic data improves, so does the dollar.
Meanwhile, the Italian Treasury borrowing costs surge as it sold a total of 7.5 billion euros ($10 billion) of a new three-year benchmark and other government bonds Tuesday. Italian bond yields had risen sharply in the secondary market ahead of the auction.
Today IMF President Christine Lagarde, made a direct announcement to help clarify yesterdays news that the IMF was to approve a loan for the Italian Government. Today she stated that, neither, Spain or Italy have asked for any assistance from the IMF