TNS EYE ON EU: Moody's downgrades Irish banks, warns Spanish banks
By Sophia Rodrigues
AUCKLAND, Dec 21: TickerNews Service update on European Union
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* MOODY'S CUTS IRISH BANKS * SPANISH BANKS WARNED * ECB BUYS * UK CBI VIEW
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RATINGS AGENCIES DOMINATE
Moody's dominated sentiments in euro zone for the second session after the ratings agency downgraded the ratings on Irish banks and placed Spanish banks' rating on review for possible downgrades.
This news was enough to keep sentiment cautious and cause more weakness in euro.
However, there is some respite after European Central Bank published the amount of bond purchases it made last week which showed there was a big decline from the week before. In fact, purchases were the lowest since the last two months, indicating some stability in the market.
In UK, data on mortgage lending was largely positive, but the view that Confederation of British Industry expects Bank of England to start raising rates in the next six months moved the market. This boosted pound sterling versus euro but the currency still fell against dollar as the greenback was boosted by risk-aversion trades.
ECB PURCHASES DROP
After the recent sharp increase in purchases, ECB's new bond purchases fell last week to 603 million euro from 2.67 million euro the week before.
As the amount of purchases did not increase significantly, ECB raised the amount it will absorb via seven-day deposit tender to 72.5 billion euro from 72.0 billion euro the week prior.
The bank said it will conduct another deposit-mopping exercise next week.
IRISH BANK DOWNGRADE
Following the downgrade of Ireland's sovereign debt rating by five notches to Baa1 from Aa2, Moody's moved to cut the rating of four Irish banks and an insurer.
The ratings agency lowered the rating on Allied Irish Banks, Bank of Ireland, EBS Building Society, Irish Life & Permanent and Irish Nationwide Building Society.
"The banks' debt ratings are affected by the downgrade of the Irish government, as the high degree of systemic support from the government had so far largely mitigates the pressure stemming from a much weaker standalone credit profile of these banks," Moody's said.
Two banks' senior debt ratings - Anglo Irish bank and Irish Nationwide Building Society were cut to Ba3 or junk status.
SPANISH BANKS
Moody's placed the rating on Spanish banks on review for a possible downgrade following its decision to place on review Spain's credit rating last week for a possible downgrade.
Moody's said during the course of the review, it will assess to what extent a potentially lower-rated government will be able to support its banking system in case of need. The review will take in to account ongoing negative outlook for the Spanish banking system.
Given the outcome Spain's rating could be more than a single notch, a multi-notch downgrade impact of long-term bank ratings is possible while the short-term rating change could be limited to a single notch, Moody's warned.
CONSUMER CONFIDENCE DROPS
After improving for six consecutive months, DG ECFIN flash estimate of consumer confidence for euro area indicator fell to minus 11.0 from minus 9.4 in November.
Confidence also declined among European Union consumers, down to minus 12.1 from minus 11.0 in November.
UK CBI VIEW
Confederation of Business Industry predicts faster growth in the economy in 2012, but maintained forecast for 2% growth in 2011.
CBI expects inflation throughout 2011 to be higher than previously forecasted, reflecting greater inflationary pressure from energy and commodity prices.
It therefore predicts Bank of England will start to normalise monetary policy in the next six months, with interest rates rising gently through to mid-2012, followed by slightly faster increases over the second half of 2012. This will take Bank Rate up to 2.7% by the fourth quarter of 2012, it forecasted.
UK MORTGAGE LENDING
The net mortgage lending grew 1.3 billion pound sterling in November, up from 1.1 billion pound sterling in October, data from Bank of England showed. Meanwhile, mortgage approvals totalled 45,000 in November against 44,000 the month before, but was still significantly lower than 61,000 in the same month a year ago.
Gross mortgage lending for November rose 11.1 billion pound sterling, marking the lowest pace of lending growth for the month in the last decade.
YIELDS FALL
Germany's 10-year bond yield dropped seven basis points to 2.97% and two-year yield fell four basis points to 1.03%.
UK's 10-year yield fell 10 basis points to 3.48% and two-year yield fell six basis points to 1.18%.
CURRENCIES RECOUP LOSSES
Euro fell 0.5% to $1.3125 per 1 euro versus dollar but gained this morning to be up 0.4% to $1.3186 per 1 euro.
Pound sterling dropped 0.2% to $1.5509 per 1 pound sterling against the greenback but rose in Asian trades, up 0.2% to $1.5552 per 1 pound sterling.
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