Debt Crisis

Standard & Poor’s Downgrade; Asian Stocks Slip

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Standard & Poor’s recently downgraded nine European countries, including France. The ratings imply that a solution to the issues in the region has yet to be found as the Eurozone debt crisis festers. Though the downgrades were expected by many, the situation remains shaky as concerns begin to spread.

“The downgrade set a nervous for this week’s markets as we approach more significant hurdles in the evolution of the Eurozone crisis,” said Ric Spooner of CMC Markets.

Asian stocks have slipped as a result of the ratings. MSCI’s index of Asia Pacific shares, excluding Japan, fell 0.3% after reaching a one-month high last week, while Japan’s Nikkei slid down to 1.51%. Hong Kong’s Hang Seng fell 1.01%, the Shanghai Composite 0.75%, and Korea’s Kospi dropped 1%.

Markets across the globe are bracing themselves as negotiations regarding the Greek and Eurozone debt remain relatively stagnant despite several efforts to get them moving.

“Failure of these negotiations remains a significant contagion risk,” Spooner explained.

At the moment, experts have projected an 8.7% growth in China’s economy for 2012. This growth will have a significant impact on the region, and will ease numerous financial pressures. If GDP does not, in fact, meet expectations, it may result in export-led downturns that China will be unable to resolve.

IATA Lowers Profit Expectations for 2012

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IATA has lowered its profit expectations from its global airline earnings in 2012 to $3.5 billion, 28.6% less than its last prediction, stating its concerns of a net loss of $8.3 billion if the Eurozone crisis continues to worsen and global GDO growth falls.

IATA’s previous forecast was released in September, in which they revealed their expectations of a $4.9 billion profit next year. The airline industry leaders represents more than 200 airlines around the world, including Asia, Europe and the Americas.

“The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8 billion- the largest since the 2008 financial crisis,” said Tony Tyler of IATA.

“This admittedly worst-case- but by no means unimaginable- scenario should serve as a wake up call to governments around the world,” he continued. “Government policies need to recognize aviation’s vital contribution to the health of the economy.”

He added that even the best case scenario for next year “is for a new margin of just 0.6% on revenues of $618 billion. But the industry is really moving at two speeds, with highly taxed European carriers headed into the red.”

Asian Stocks Fall as Greek Prime Minister Steps Down

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Asian stocks suffered a blow as Greek Prime Minister George Papandreou agreed to leave his post and Italian PM Silvio Berlusconi fought to maintain his advantage in face of the parliamentary vote.

HSBC Hodings, Europe’s primary lender, slipped 1% in Hong Kong, while Takeda Pharmaceutical Co. fell 2.3%. Cnooc Ltd. fell 2.2% after the Chinese oil explorer’s BP Plc purchase in Argentina fell through.

The MSCI Asia Pacific Index lost 0.4% in Tokyo, with approximately three shares falling for every two that rose. The measure fell 3.6% last week, the most since the beginning of the quarter, following Greece’s referendum plan.

“It might get worse before it gets better,” said Binay Chandgothia of Principal Global Investors in Hong Kong. “If you look at the experience in the last 12 to 18 months in Europe, the crisis brings out the right solution. The way they are going to move is one step forward, two steps backward. We have to live with this.”

Asian Shares Increase as Eurozone Meetings Continue

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Asian shares saw a dramatic increase following this weekend’s meetings in Europe, which resulted in “good progress.” According to European finance ministers, the Eurozone plans to boost its $610 billion rescue fund in an effort to draw investors and convince markets that it is indeed capable of protecting floundering countries such as Italy and Greece.

Few real details were released after the meetings, though. Investors have continued to focus on the yen, which has reached a record post-war high of 75.78 against the dollar. As a result, Japanese finance minister Jun Azumi has called for “decisive steps” to slow the currency’s dramatic rise, amid concerns that the yen will hinder the country’s export market.

Hong Kong and Shanghai both climbed this week as well, as improved manufacturing data was released from China, but Europe’s crisis does not seem to have slowed. Debates are still common as the Eurozone struggles to find a solution for the economic issue without further provoking its richer nations, such as Germany, who have placed their limit after repeatedly bailing out the region’s weaker members.

“The mood of trading is generally optimistic that Eurozone policy makers will announce significant measures on Wednesday to bolster the bailout fund and resolve Greece’s debt crisis, while also supporting the region’s banks,” explained Stan Shamu of IG Markets.