Intraday Market Thoughts

Fitch Sees no 2012 France Downgrade, Italy at Risk

by Kyle Morrison
Jan 10, 2012 9:54

Fitch said it sees no France downgrade in 2012, Merkel and Sarkozy focus on growth, urging quick resolution to Greece PSI plan, Ireland bailout plan to be scrutinised by Lenders troika, UK BRC retail sales numbers for December rebound sharply. China trade surplus rises in December. Monday's Premium trading are currently in progress.

In its European Credit Outlook presentation for 2012. Fitch said it does not expect France downgrade in 2012. This comes less than a month after Fitch lowered its France outlook to negative from stable, indicating slightly greater than 50% chance of a downgrade over a two-year horizon. Meanwhile, the credit agency did say there is a likelihood for a downgrade of Italy's credit rating once it concludes its review later this month. Regarding UK's rating, Fitch said QE has helped reduce gross debt borrowing.

Separately, France industrial output rose 0.5% in November following a 0.1% rise in October.

Yesterdays meeting between Merkel and Sarkozy saw the two leaders keen to see a resolution to the latest Greek bailout package with respect to the latest PSI involvement of 50%. This looks likely to run to the wire with the two leaders insistent that the next bailout tranche will not be paid until there is agreement.

In Ireland the troika of lenders of the ECB, IMF and EU is due to inspect the progress of the Irish government in meeting its latest bailout targets. Given that the latest Q3 GDP numbers saw a contraction of 1.9% there is a concern that new austerity measures may be called for.

The UKs latest British Retail Consortium retail sales numbers for December unexpectedly bounced back strongly, perhaps aided by a pre-Christmas bounce, as well as a lower base in 2010 data. BRC sales rose 2.2% in Dec following Novembers sharp 1.6% decline. Nonetheless, analysts remain preoccupied with statements from eminent retailers suggesting margins are getting thinner.

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China's latest trade balance data showed a rise in the trade surplus for December, rising slightly from $14.53bn in November to $16.8bn, well above expectations of a rise of $8.8bn. Exports remained steady at 13.8%, above expectations of a rise of 12.5%, though this might be explained by the early falling of Chinese New Year, while imports dropped sharply from 22.1% to 11.8%. This sharp drop reinforces concerns of a fall-off in demand internally and may prompt the PBOC to look at easing monetary policy again after last months bank reserve requirements cut.


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