As Wall Street was closed for Thanksgiving Day holiday, the focus was once again on the Eurozone. More bad news was received and financial market sank further. Germany's Chancellor Angela Merkel reiterated her disfavor on Eurobonds while Fitch's downgraded Portugal's credit rating to non-investment grade. In the commodity sector, Brent crude rebounded and closed at 107.78. Near-term risk is skewed to the downside, though.
In the joint statement released by Gemany and France, Merkel and Sarkozy pledged their confidence in the ECB and its leaders and stated that they would stop arguing about the central bank's function in public 'in respect of the independence of this essential institution'. However, Merkel reiterated her opposition for the Eurobond, saying it is 'extraordinarily inappropriate the Commission is suggesting various options for euro bonds today as if they were saying we can overcome the shortcomings of the currency union's structure by collectivising debt'.
Concerning peripheral economies, Fitch's downgraded the credit rating of Portugal to BB+ from BBB-, citing the government would find it more challenging to lower its budget deficit in the midst of deepening recession. Yet, the agency still expected the country to meet its fiscal target both this year and in 2012. At the current rating, Fitch's view on Portugal is the worst among the 3 major rating agencies. Moody's rating is Ba2 while S&P continued to hold Portugal's debts in investment grade,
In China, the People's Bank of China lowered the reserve requirement ratio (RRR) of 5 rural banks as economic data has shown that the country's economy is slowing. Yet, it remained unlikely that the government will lower interest rates for the rest of the year. China is expected to avoid hard landing in its economy despite moderation in growth. Therefore, the government's monetary strategy would probably be a pause in tightening instead of a reversal of previous rate hikes.