Standard and Poor's downgraded its unsolicited ratings on Italy by one notch to A/A-1 and kept its outlook on negative, a major surprise that threatens to add to concerns of contagion in the debt-stressed euro zone.
The single currency skidded over half a cent to $1.3606 after S&P said the cut reflected its view of Italy's weakening economic growth prospects.
Italy's fragile governing coalition and policy differences within parliament will likely limit the government's ability to respond decisively to the challenging domestic and external macroeconomic environment, the agency said.
"In our opinion, the measures included in and the implementation timeline of Italy's National Reform Plan will likely do little to boost Italy's economic performance, particularly against the backdrop of tightening financial conditions and the government's fiscal austerity program," said S&P.
The move from S&P came as a surprise as the market had thought Moody's was more likely to downgrade Italy first. Moody's last week said it would take another month to decide on its action.
The downgrade came as Greece struggles to meet demands from lenders for yet more austerity measures.
"It's just more of the same negative news," said Stephen Roberts, a senior economist at Nomura in Sydney.
"It only adds to the contagion risk over Greece and has encouraged the flight to safety in markets here," he added, pointing to a sharp fall in the Australian dollar on the news.
S&P 500 futures also dropped 0.7 percent and early hopes for a bounce in Asian shares on Tuesday looked to be still-born now. (Click here for latest futures quotes)
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EU Bonds Rollover Debt with a Chinese Bailout
It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels.” Deutsche Bank CEO Josef Ackerman.
http://www.activistpost.com/2011/09/eu-bonds-rollover-debt-with-chinese.html
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EU Bailout - Don’t Worry Be Happy
It doesn’t seem that anyone is worried much about another enormous bailout to stabilize the world financial system that kicked off last week. According to one top European banker, many of the biggest banks there are insolvent.
The problem is so large that the European Central Bank along with the Bank of Japan, Bank of England, Bank of Switzerland, and the U.S. Federal Reserve will all team up and bailout Europe—again.
http://www.activistpost.com/2011/09/eu-bailoutdont-worry-be-happy.html
Photo courtesy of Alexander Higgins.