Financial markets plummeted on Asian session Monday as massive downgrades of European credit ratings triggered selloff. S&P's downgrade of Italy's rating was particularly dramatic and the ECB pledged to do whatever it could to calm the market. The MSCI Asia Pacific Index slumped more than -1%. Last Friday, Wall Street lost with DJIA and S&P 500 falling -0.39% and -0.495 respectively. In the commodity sector, oil prices stabilized after the decline last week while gold recovered after prices slipped in tandem with the broad-based selloff on Friday.
S&P's downgraded credit ratings of a number of European countries, including France, the second largest economy in the Eurozone, France's rating was cut by 1 notch to AA+ from AAA. On a positive note, the downgrade was less than the 2 notches previously warned by the agency. Currently, the only Eurozone country still possessing a triple A rating is Germany. What worried the market the most was the 2-notch downgrade of Italy's rating to BBB+ from A. According the S&P's, the downgrades were driven by that the policy initiatives taken... in recent weeks may be insufficient to fully address ongoing system stresses'. The downgrades may affect the rating of the EFSF. As the agency mentioned in December, 'based on EFSF's current structure, were we to lower one or more of the current 'AAA' ratings on EFSF's guarantor members, all else being equal, we would lower the issuer and issue ratings on EFSF to the lowest sovereign rating on members currently rated AAA'.
Among all Eurozone countries, the focus this week will be on Greece as the Troika is returning to Athens for negotiation of the next loan program. Moreover, the market is awaiting the progress of the PSI talk especially after news reports that talks have been broken off as Greek creditor banks failed to agree with the government regarding the interest rates Greece will be paying eventually.
Commitments of Traders:
With the exception of heating oil, speculators were bullish towards the energy complex in the week ended January 10. Net length for crude oil futures increased -14 880 contracts to 159 349. Net length for heating oil slipped -841 contracts to 16 678 while that for gasoline rose +6 939 contracts to 68 983. Net short for natural gas futures rose +2 985 contracts to 155 035.
With the exception of palladium, speculators were bullish on precious metals. Net length for gold futures added +1 789 contracts to 132 760 while that for silver soared +1 433 contracts to 11 071. For PGMs, net length for platinum gained +551 contracts to 20 037 while that for palladium decreased -682 contracts to 4 502.