MORNING BRIEFING: European downgrades – another shock to banks?

[RTFX-Trading]

MORNING BRIEFING: European downgrades – another shock to banks?

[B][I][U]What’s new:[/U][/I][/B]
United states: Rates Unchanged, employment slightly better
Euro Zone: Standard & Poor’s downgrades drive markets lower
Germany: Merkel demands faster Greek Rescue
Brazil: Raises rates to control inflation


[B][I][U]Today:
[/U][/I][/B]
[IMG]http://www.rtfx.com/images/news/CAL290410.gif[/IMG]

[B][I][U]Overnight Rates and Indices: [/U][/I][/B]
EURUSD: 1.3239 – 1.3184.
USDCHF: 1.0869 – 1.0836.
GBPUSD: 1.5209 – 1.5142.
EURJPY: 124.39 – 123.75.
USDJPY: 94.18 – 93.85.
DowJones: 11’045.27 +0.48%
NASDAQ: 2’471.73 +0.01%
S&P 500: 1’191.36 +0.65%
Nikkei: 10’924.79 -2.57%.
Shanghai: 2’868.432 -1.1%,
Gold: $1’167.40
Crude Oil: $83.18

[B][I][U]Comments: [/U][/I][/B]

Yesterday evening the US Fed left interest rates unchanged and maintained the ‘extended period’ language. However, they were slightly more positive on employment prospects and on the US economy in general.

US Dollar offset some of its recent gains after the release of the FOMC statement. US Dollar was a bit weaker against the Yen but volumes are likely to be low given that Tokyo is shut for golden week holidays.

Market is heavily short on the EURO, focusing on sovereign troubles in the Euro area. Following Greece and Portugal’s downgrade, concern continued to grow as Standard & Poor’s also downgraded Spain’s credit rating by one notch to AA, citing an extended period of sluggish economic growth. In addition comments from IMF Managing Director indicated that the joint aid package for Greece will be worth between €100bln to €120bln over three years. The focus now is on which banks and what exposure they have on Greece. If the European banking system is at risk, ECB will have to offer liquidity to banks, and require them to come clean from their exposure.

During early hours the Euro Reclaimed the 1.32 figure but failed to build significant momentum, with a lot of sideways movement.

Good Day.

Rudolf Muscat

Trading desk
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