Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Double Ratings Downgrade Hits UK

By CMC Markets (Michael Hewson)Market OverviewJun 28, 2016 08:17
uk.investing.com/analysis/double-ratings-downgrade-hits-uk-200138533
Double Ratings Downgrade Hits UK
By CMC Markets (Michael Hewson)   |  Jun 28, 2016 08:17
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

It’s been a torrid few days for equity markets and the pound in particular as it continues to plumb new multi-year lows against the US dollar.

With politicians seemingly intent on making a laughing stock of the UK, with the Labour opposition tearing itself apart, and the Conservative government still debating as to what to do next, the ratings agencies decided to rub salt in the wounds by announcing a raft of downgrades.

Standard and Poor’s removed the UK’s last remaining triple A sovereign rating by two notches to AA citing political uncertainty, constitutional risk and a less predictable and stable policy outlook. Soon after Fitch followed suit also downgrading the rating to AA, citing a “less predictable, stable and effective policy framework.”

While this would have mattered a lot a few years ago, the loss of confidence in the ratings agencies since the credit crisis saw the announcement barely cause a ripple in the markets. As if to reinforce that point UK gilt yields hit new all-time lows below 1%.

Later today Prime Minister David Cameron will be heading to Brussels to attend a meeting of EU leaders in the wake of last week’s vote and while his reception is probably likely to be chilly, there will probably also be some light hearted mentions of last night’s embarrassment on the football fields of France, as England lost to Iceland. Yesterday the Prime Minister announced he would not be triggering Article 50 of the Lisbon Treaty, and also ruled out the prospect of another referendum. Given the poisonous nature of the last one, that may be no bad thing.

On the other side the EU issued a warning that talks on future relations could not begin until the request had been lodged in what could well turn out to be a cross channel staring contest.

Meanwhile the banking sector has continued to get pummeled, and while UK banks are perceived to be more resilient, banks in Europe are anything but, though RBS (LON:RBS) is back near levels last seen in 2009. Fears about further interest rate reductions are raising concerns about future profitability, while EU passporting concerns are also a worry.

Deutsche Bank (DE:DBKGn) has once again hit new record lows while Italian banks have also remained under pressure, with Unicredit (MI:CRDI), Monti Dei Paschi and Popolare (LON:0QRG) all down heavily at new all-time lows, as concerns about the huge amount of non-performing loans prompt new concerns about their solvency.

Reports that the Italian government is weighing up measures that could add up to €40bn into Italian lenders weren’t enough to support the share prices, probably down to the fact that these banks have non-performing loans in excess of €300bn.

The current market turmoil is likely to see any prospect of a US rate rise deferred further while the final iteration of US Q1 GDP is expected to come in at 1%, up from 0.8%, and US consumer confidence for June set to edge up to 93.2.

EUR/USD – struggling to break above the 200 day MA just above the 1.1100 area keeps the pressure on the downside and could well see a move towards the March lows at 1.0825. To stabilise we need to see a move back above the 1.1250 area.

GBP/USD – appears to have found some support around the 1.3120 area, another 30 year low. To stabilise and mitigate the risk of a move below 1.3000 towards 1.2800 we need to see a move back through the 1.3650 area.

EUR/GBP – finding some resistance at 0.8370 area the 2014 highs as well as the 50% retracement of the move from the 2008 highs at 0.9802 to the 2015 lows at 0.6934. A move through here could well see a move towards 0.8706. Support comes in at 0.8120, and the April highs.

USD/JPY – the US dollar slid lower last week through the 103.50 support before rebounding from the 98.96 area. We need to get back through the 103.50 area to retest the 105.50 area. A move below 100.00 is likely to prompt the risk of further losses and possible BoJ intervention concerns.

Equity market calls

FTSE100 is expected to open 58 points higher at 6,040

DAX is expected to open 134 points higher at 9,402

CAC40 is expected to open 15 points higher at 4,045

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Original post

Double Ratings Downgrade Hits UK
 

Related Articles

Michael Hewson
German Election Ends In Gridlock By Michael Hewson - Sep 27, 2021

Despite hitting two-month lows last week, markets in Europe eventually managed to finish higher, on the week, reversing a run of three successive weekly losses. Concerns about...

Double Ratings Downgrade Hits UK

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The inherent concept of such investments means that they are not suitable for the investor seeking income from such investments, and are only suitable for those who have the required experience and understand the market risks. You should carefully consider your investment objectives, level of experience, and seek advice from an independent financial advisor if you have any doubts.
Continue with Google
or
Sign up with Email