Intraday Market Thoughts

Nth Korea's Leader Dies, Adding to Markets Rating Overhang

by Kyle Morrison
Dec 19, 2011 7:47

North Koreas Kim Jong-il dies, Ratings agencies overhang remains a threat, Eurogroup set to discuss IMF bilateral loans and other fiscal compact measures, US Republicans set to vote on payroll tax cut bill. European markets to open in the red after Asia selloff, with EURUSD struggling to hold $1.30.

The overnight of death of North Koreas leader Kim Jong-il has added an additional element for markets to think about with uncertainty over who has control in this secretive authoritarian regime.Markets were always likely to remain cautious this week even without the overnight news, as they absorbed the latest downgrades and warnings from the ratings agencies at the end of last week. With markets likely to remain thin markets are still awaiting Standard and Poors final assessment of the EU summit 10 days ago with the fear that France could well lose its triple A rating, and with the EFSF lose its rating as well.

Moodys decision to downgrade Belgium two notches wasnt too much of a surprise given their exposure to Dexia and their latest growth figures showing contraction, and their yields could well come under pressure again this week.

Fitch also got in on the act, but decided to just cock the trigger on Friday and not actually pull it, by putting six European countries on negative watch with a view to a downgrade, including France, Italy and Spain. Their assessment that a comprehensive fix to euro crisis is probably beyond reach showed that a downgrade is probably only a matter of time.

7 of Fridays Premium trades are in progress. 1 EURUSD long & 1 AUDNZD short hit all targets. The latter trade has stood for 2 weeks. Direct access to these trades is found here: Non Subscribers can click on here:

Eurogroup finance ministers are expected to hold a teleconference on the latest fiscal compact as well as the make-up of the extra 200bn worth of bi-lateral loans, of which the UK is expected to cough up around 30bn, a figure already rejected by UK PM Cameron at the end of last week.

In the US, the ongoing shenanigans between Republicans and Democrats continue to play out with the Democrats passing the extension of the Bush payroll tax cut bill in the Senate at the weekend. The Republican-dominated House is due to vote on it tonight with the risk of a rejection. Economists have stated that the failure to extend the measures into year would hurt a U.S. recovery already exposed to the European crisis. Some have even suggested it could cut as much as 1% off U.S. economic growth.


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