European markets responded calmly on Monday to
Standard & Poor's decision to cut the credit ratings of a number of euro countries, including France.
The
downgrades, which were based on concerns over Europe's ability to handle its two-year debt crisis and the lack of economic growth, had been anticipated for weeks so the
market impact was muted, especially since the US is on holiday for Martin Luther King Day.
Europe will likely remain the focus of attention all week as a number of bond auctions are due and Greece tries to clinch a debt deal with its private creditors. Last October, Greece's partners in the eurozone sanctioned a deal whereby Greece's creditors agree to take a cut in the value of their Greek bond holdings to help lighten the country's debt burden.
The deal with private investors, known as the Private Sector Involvement, or PSI, aims to reduce Greece's debt by euro 100 billion ($126.5 billion) by swapping private creditors' bonds for new ones with a lower value. It is a key part of a euro 130 billion international bailout, the second one for Greece.
It is expected that talks on the PSI will resume this coming week after being abandoned last Friday.
On Tuesday, representatives of Greece's creditors - the European Union, the European Central Bank and the International Monetary Fund - will visit Greece for yet another round of inspections of its efforts at fiscal and structural reform and negotiations for the next tranche, the seventh, from the first bailout.
Without a deal with its private creditors, Greece has been told it won't get the next tranche of money due from its first bailout. Without that money, Greece would be unable to pay a big bond redemption in March and would face the prospect of defaulting on its debts, potentially triggering more mayhem in financial markets.
While investors awaited developments, markets were slightly lower, trading in fairly narrow ranges.
In Europe, Germany's DAX was 0.3 per cent higher at 6,161 while the CAC-40 in France rose 0.1 per cent to 3,198. The FTSE 100 index of leading British shares was down 0.1 per cent at 5,623. The euro was also relatively steady, up 0.2 per cent at $1.2672. On Friday, it had fallen to a 17-month dollar low of $1.2623 as speculation swirled in the markets of S&P's downgrades.
Earlier in Asia, markets responded more negatively to the S&P downgrades, which were confirmed after US and European markets had closed on Friday. Asian markets had already closed by the time speculation of the downgrades emerged.
Japan's Nikkei 225 index slid 1.4 per cent to close at 8,378.36 and Hong Kong's Hang Seng lost 1 per cent at 19,021.20. South Korea's Kospi dropped 0.9 per cent to 1,859.25.
In mainland China, the Shanghai Composite Index lost 1.7 per cent to 2,206.19, while the smaller Shenzhen Composite Index dropped 3.3 per cent to 818.17. Almost 70 companies plunged the daily limit of 10 per cent.
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