Global stocks have recorded their tenth consecutive daily decline Belgium downgrade reverses rally - FT

The S&P 500 has lost 7.6 per cent in just the past six sessions as eurozone fiscal woes fed into global growth fears

Global stocks have recorded their tenth consecutive daily decline

Belgium downgrade reverses rally - FT

By Telis Demos in New York

Friday 18.15 GMT. Global stocks have recorded their tenth consecutive daily decline after a Wall Street rally fizzled on worries about Italian banks and sovereign debt.

Belgium’s sovereign rating was cut by Standard & Poor’s just before the US’s early close on Friday at 18.00 GMT. Its rating was slashed from double A plus to double A, with a negative outlook.

Earlier in the session, benchmark Belgian debts had widened again to record levels versus German paper, a premium of 360 basis points. That came despite Germany’s paper touching their highest yields since August.

S&P cited “renewed funding and market risk” on Belgium’s financial sector, already strained by Dexia’s nationalisation earlier this year, and “increasing likelihood...that economic growth will slow, given the deleveraging of the European financial sector”.

The S&P move also came just a few minutes after Fitch had downgrade 8 mid-sized Italian banks, and placed them on negative watch as well. Earlier, Italian debt-watchers were nervous after an auction of short-term paper by Italy saw good demand but euro-era record yields.

The result was bad enough to prompt Ignazio Visco, Bank of Italy governor, to say it was “not a balanced indication of the current economy”, according to Reuters.

The FTSE All-World index is now down 0.4 per cent, as the S&P 500 in New York erased an opening-bell gain to close down 0.3 per cent at 1,158.67, its low for the week and lowest point since 10 October.

The S&P has endured its worst week since September, while the All-World is flirting with “correction” territory this month, down 9.4 per cent since 11 November.

Earlier, yields on ten-year Italian notes hit 7.61 per cent, up 29bp, moving further north of the critical 7 per cent threshold. Germany also reiterated its opposition to the introduction of a eurozone bond and its reluctance to see the European Central Bank get more involved in tackling the crisis.

“The pace at which the eurozone crisis is escalating is frightening,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy. ”The ‘break-up’ genie has been let out of the eurozone bottle and is feeding a run on the bond markets of the weakest countries.”

The cost of swapping euros into dollars is near the highest levels since the credit crunch shock of 2008, while yields on Italian 10-year bonds, which have often been used by traders as a gauge of eurozone fiscal anxiety, are up 20 basis points to 7.30 per cent.

Trading overall is thin and volatile after the US Thanksgiving holiday, followed by a half-session in New York on Friday. The FTSE Eurofirst 300 had surged in the last hour of trading, ending 0.9 per cent higher after being softer all session.

But most so-called risk assets continue to struggle to make significant headway. Commodity prices are mixed on worries about slowing demand for raw materials following this week’s softer than expected US gross domestic product data and a weaker Chinese manufacturing survey.

Copper is down 0.3 per cent to $3.27 a pound and Brent crude is off 1.5 per cent to $106.20 a barrel. Currency traders are displaying mixed risk appetite, with the dollar index up 0.5 per cent. But growth-focused plays, such as the Aussie dollar, are also higher.

The early source of traders angst was clear. The single currency has hit a seven-week low of $1.3213, as signs of stress remain in the bloc’s sovereign debt complex and financial system. It is currently down 0.6 per cent at $1.3261.

The market is also keeping an eye on German paper after the poor auction on Wednesday. The amount Berlin has to pay to borrow for 10-years – currently 2.27 per cent, up 7 basis points – is still near historically low levels. But the more than 30bp jump in a few days has raised fears among some that the contagion is spreading to Berlin.

On Friday German 10-year yields fell 1bp to 2.24 per cent by the end of the day, but not before touching 2.286 per cent, their highest level since August.

Earlier, Asian shares extended losses as European leaders failed to soothe investor fears about the region’s worsening debt crisis. Financial stocks were particularly hard hit across the region, pushing the FTSE Asia Pacific index down 1.1 per cent.

Hong Kong’s Hang Seng index slid 1.4 per cent while the Shanghai Composite index slipped 0.7 per cent. Australia’s S&P/ASX 200 index was off 1.5 per cent as miners took a knock. Tokyo’s Nikkei 225 rallied off its lows but still lost 0.1 per cent, leaving the benchmark at a fresh two-and-a-half year low.

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Trading Post

Thanksgiving turkeys were not alone in getting stuffed this week. When US investors returned today from their short break they faced a stock market that has been most definitely feeling the worse for wear of late, writes Jamie Chisholm.

The S&P 500 has lost 7.6 per cent in just the past six sessions as eurozone fiscal woes fed into global growth fears.

Though arguably “oversold” – the S&P’s relative strength index was at 37 before Friday’s market bounce – some other technical indicators remain concerning.

At 1,162 the benchmark has swiftly breached support at 1,225, 1,200 and around 1,170. This leaves it below the 200- and 50-day moving averages, the latter of which may now be seen as resistance. Pessimists are talking of a possible test of October’s trough below 1,100.

Bulls, however, may point to the Vix index’s stability around the 34 mark – at Wednesday’s close – as a sign that traders are not as anxious as headlines suggest.

But as Bob Pisani, CNBC commentator, points out, the “fear index” is a bit off message at the moment, with thin markets and fewer trading days during the festive season leaving investors unwilling to stump up so much for protection.

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Additional reporting by Jamie Chisholm in London. Follow his market comments on Twitter: @FTGlobalMarkets

Belgium downgrade reverses rally - FT.com