Intraday Market Thoughts

Fitch Downgrades US & EU Banks, Italy Austerity Vote Awaited

by Kyle Morrison
Dec 16, 2011 10:11

Italy confidence vote may trigger fresh uncertainty, Merkel Fears FDP split, Fitch and S&P downgrades add to pressure on banks, Cracks start to appear in fiscal compact, US CPI due, Fridays Premium Intermarket Insights are due ahead of the US open.

Fitch downgraded Goldman Sachs & Bank of America as well as scores of European banks (including Barclays, BNP Paribas and Deutsche Bank) on the basis that they are too big to fail, In a separate move Standard and Poors also downgraded 10 Spanish banks.

In an attempt to instil confidence to the markets and bring bond yields down Italian PM Monti has called for a confidence vote today on the new austerity budget, in the face of strikes earlier this week and increasing opposition within the country. If it is voted down it will throw into doubt the effectiveness of Montis appointment and the ability of Italy to get on top of its problems.

In Germany, splits amongst Angela Merkels junior coalition partners the FDP could come to the fore, if they vote against the setting up of the ESM, the permanent bailout fund. Not only could it force the party from government but it would mean that Merkel would have to rely on opposition support to push the measures through and weaken her politically.

In a separate development EU officials invited the UK to participate in negotiations over the proposed measures in the fiscal compact in the coming weeks, despite a number of countries starting to express severe misgivings about the sovereignty over reach of some of them. The countries in question include Hungary, Czech Republic, Poland, Ireland and Sweden.

The only economic data of note is the release of US November CPI, however that isnt expected to offer up too much in the way of surprises.

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