President Nicolas Sarkozy of France, in his first public comments since Standard Poor’s cut the country’s rating Friday by one notch from the top AAA grade, said that “in the final analysis, this doesn’t change anything.”
Speaking in Madrid at a joint news conference with the Spanish prime minister, Mariano Rajoy, Mr. Sarkozy said France and the other European countries that were downgraded “must cut our deficits, cut spending and improve the competitiveness of our economies to return to growth.”
Market activity was subdued Monday, with Wall Street closed for the Martin Luther King’s Birthday holiday, but analysts were looking ahead to a flurry of activity ahead of the European Union’s next summit meeting, which is to be held Jan. 30 in Brussels.
Much of the attention is focused on Greece, where talks on the amount by which private-sector lenders would write down the value of their holdings of Greek bonds broke down last Friday, but were to resume this week.
“The progress or otherwise of these negotiations will probably dictate how the market trades over the next few weeks,” said Gary Jenkins, the founder of the fixed-income analysis and consulting firm Swordfish Research, according to The Associated Press.
Mr. Rajoy, who broke a pre-election promise by raising taxes, told journalists that he did not think additional tax increases would be necessary. He also said Spain should continue to hold a seat on the board of the European Central Bank.
Herman Van Rompuy, the president of the European Council, met Monday in Rome with Prime Minister Mario Monti of Italy. “Market players or rating agencies sometimes consider our response as incomplete or insufficient,” Bloomberg News quoted Mr. Van Rompuy as saying at a news conference after the meeting. “Yet real progress has been made in reshaping the euro area in order to build on its fundamentals, which are on average sound.”
The decision by S.P. to cut France’s credit rating had been widely expected, especially after the agency accidentally released a draft downgrade announcement in November, and it apparently had no immediate effect on the market for French debt.
In its first test of investors’ appetite since the downgrade, the French Treasury on Monday sold €8.6 billion, or $10.9 billion, of short-term debt securities at yields slightly lower than in the previous auction. The yields on the country’s 10-year bonds fell 0.04 percentage point by late Monday, to 3.014 percent.
Moody’s Investors Service, a rival to S.P., on Monday said it was maintaining its own top rating of France, at Aaa, for the time being, with the results of a review that is currently under way to be announced before April.
In trading Monday, the Euro Stoxx 50 index, a barometer of euro zone blue chips, closed up 1 percent, and the FTSE 100 index in London rose 0.4 percent. Indexes rose in France and Italy and were little changed in Spain.
In addition to France, S.P. also cut the ratings of Austria, Italy and six other European countries last week. The agency cited a deteriorating economic situation and disappointment with leaders’ efforts to address the euro crisis.
On Monday, yields on Italian 10-year bonds edged down one basis point, to 6.581 percent, while Spanish 10-years were yielding 5.117 percent, down four basis points. A basis point is one-hundredth of a percentage point.
Reuters cited unidentified traders as saying the European Central Bank had intervened in the secondary bond market again, buying Italian and Spanish securities to relieve some pressure on yields.
Yields on German 10-year bonds, the European benchmark, were unchanged, at 1.764 percent.
The dollar was mixed against other major currencies. The euro slipped to $1.2673 by late Monday in Europe from $1.2680 late Friday in New York, while the pound rose to $1.5325 from $1.5317. The dollar fell to ¥76.75 from ¥76.97, but rose to 0.9538 Swiss francs from 0.9524 francs.
Asian shares fell. The Tokyo benchmark Nikkei 225 stock average slid 1.4 percent. The Sydney benchmark index fell 1.2 percent. In Hong Kong, the Hang Seng fell 1 percent and in Shanghai the composite index declined 1.7 percent.
Article source: http://feeds.nytimes.com/click.phdo?i=39e1817c0f3f1e0c39a1fa1528fae1c1
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