The EU summit did little to help revive market confidence. On the contrary, investors got more pessimistic and risk appetite declined as rating agencies warned of downgrading credit ratings of European bonds. Wall Street plummeted with the DJIA and S&P 500 losing -1.34% and -1.49% respectively. In the commodity sector, the front-month contract for WTI crude slipped -1.65% while the equivalent Brent crude contract dipped -1.23%. The benchmark Comex contract for gold fell in tandem with, breaking below 1700 for the first time since November 28 and ended the day at 1668.8, down -2.83%.
Moody's said that it would review the credit ratings of EU countries in the first quarter of net year as the EU summit failed to deliver 'decisive policy measures'. This would result in 'further shocks and the cohesion of the euro area under continued threat'. While the agency acknowledged EU leaders' efforts on fiscal consolidation, it criticized there were 'few new measures and points out that many are similar to previously announced ones'. As a result, Moody's believed that 'the crisis is in a critical and volatile stage, with sovereign and bank debt markets prone to acute dislocation which policymakers will find increasingly hard to contain'. Although Moody's retained the central scenario that that the Eurozone will be 'preserved without further widespread defaults, the shocks that are likely to materialise even under this 'positive' scenario carry negative rating implications in the coming months. Moreover, the longer the incremental approach to policy persists, the greater the likelihood of more severe scenarios, including those involving multiple defaults by euro area countries and those additionally involving exits from the euro area'.
The outcome of the summit was not a favorable one. Fitch's shared the worries by stating that 'It seems that a 'comprehensive solution' to the current crisis is not on offer' while French presidential candidate Francois Hollande said that 'this accord is not the right answer...If I am elected president, I will negotiate, renegotiate this accord'.
Concerning the dataflow, UK's CPI probably moderated to +4.8% y/y in November from +5.0% a month ago. Core CPI is expected to have eased to +3.3% from +3.4% in October. In the Eurozone, ZEW economic sentiment probably slipped to -60.3 in December from -59.1 in the prior month. In the US, retail sales might have climbed +0.6% m/m in November after a +0.5% gain in October. Excluding auto, the reading probably gained +0.4%, easing from +0.6% in October. The FOMC meeting will be held in the US session but policymakers are not expected to adjust the monetary policy.
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