This morning is the first chance that Asian markets have been able to react since the downgrades of 9 European Nations on Friday by Standard and Poors.
These downgrades, were expected, but the markets did not expect them to come in one shot and were hoping it would be later in the month, giving the EU a little more time to annouce a plan and allowing Greece time to complete negotiations with their creditors.
Over the weekend, Greek negotiations have fallen apart. And now, it looks like Greece will be needing a good deal more then the projected 130billion euros. At present the EU emergency fund only has 250billion euros. There were hopes that the EU could put in place their bond sales, to increase the liquidy of the fund using leverage and the high ratings from the major EU nations. The rating of the new EU bond have been put into play with these downgrades, as the rating would have been based on the nations garanteeing the bonds.
France’s downgrade, is a triple whammy. First is the effect on the EU bonds as France is one of the largest economys behind Germany. Second, this downgrade will hurt France’s borrowing costs and in a time of economic turmoil, borrowing costs have a very negative effect. Lastly, this is a blow to the French Banking System. The pertinent issue is not the sovereign-debt cuts, it’s the ensuing downgrades for the French banks. That is creating a lot of negativity in the market. The contagion impact will be on the U.K. and the U.S. banks as well. These downgrades will undermine and shake economys around the globe
Hopefully the US economy which is showing some growth will not suffer.
The weakness of the euro, is having a strong effect on the Yen and USD, the Yen continues to climb which is putting huge pressures on the Japanese economy and exports. There is a change that the government might intervene if the USD does not outpace the Yen shortly.
This mornings Asian markets have pushed down all financial institutions.
In Tokyo, Nomura Holdings Inc. plummeted 2.8%, Daiwa Securities Group Inc. tracked down 2.5% and Shinsei Bank Ltd. lost 3.8%.
Agricultural Bank of China Ltd. Was down 1.4% in Hong Kong. Australian banks followed suit with, Australian & New Zealand Banking Corp. and the National Australia Bank Ltd. dropping 1.6%, while investment bank Macquarie Group Ltd. Dropped 2.5%.
Stocks throughout Asia fell also this morning, Japan’s Nikkei Stock Average down 1.5%, Australia’s S&P/ASX 200 index off by 1.2% and South Korea’s Kospi down by 0.9%.
Hong Kong’s Hang Seng dropping 1% and China’s Shanghai Composite down again by 0.7%.
Taiwan’s Taiex fell by1%.