A sharp downgrade on Irish debt weighed on European stock markets yesterday and the euro came under pressure against the dollar following positive US data and the end of an EU summit seen as unlikely to stem a debt crisis.
But the European bond market was little moved by news that Moody’s had slashed Ireland’s sovereign credit rating by five notches, citing increased uncertainty over the country’s economy and public finances.
The yield on Ireland’s 10-year sovereign edged up slightly to 8.352 percent from 8.279 per cent on Thursday.
“The impact was less severe than it could have been thanks to assistance from the European Union and the International Monetary Fund,” said Yiannis Sokos, bond strategist at BNP Paribas bank.
“In addition this downgrade had been taken into account for a long time.”
Ireland, struggling to rein in debt, was recently accorded an 85-billion EU-IMF bailout, a rescue that followed similar action on behalf of Greece in May.
Greek 10-year bond yields were stable on yesterday at 11.922 per cent. In Brussels Friday EU leaders ending a two-day summit pledged to continue defending debt-plagued euro nations, but their initiative failed to impress markets and market analysts.
European Union President Herman Van Rompuy said plans for the 27 states to rewrite their treaty and set up a permanent emergency rescue fund from mid-2013 would make the world’s biggest tariff-free trading bloc “more crisis-proof.”
The successor to a temporary, IMF-backed trillion-dollar facility created after the crisis was unleashed in Greece, would anchor “a comprehensive response to any challenges, as part of the eurozone’s new economic governance.”
Carsten Brzeski of ING accused EU leaders of indulging in “window-dressing”, with Frank Engels of Barclays Capital decrying “yet another missed opportunity”.
Jonathan Loynes of Capital Economics said the EU was “typically vague”, doing “little to address uncertainties over the burden likely to be shouldered by private sector bondholders”.
In London, FTSE 100 index shed 0.16 per cent to finish at 5,871.75 points while in Paris the CAC 40 lost 0.54 per cent to close at 3,867.35. The Frankfurt DAX fell 0.60 per cent to 6,982.45.
Elsewhere, Milan shed 1.46 per cent, Madrid 1.12 per cent and the Swiss Market Index 0.43 per cent. Share prices edged up 0.05 per cent in Amsterdam.
The Irish downgrade weighed on the banking sector, with Royal Bank of Scotland tumbling 5.73 percent, Barclays 1.42 per cent, Credit Agricole 2.51 per cent and BNP Paribas 1.74 per cent.
On the currency market the euro in late-day trade was at $1.3153, down from $1.3242 on Thursday.
The dollar was meanwhile trading at 84.15 yen, up from 83.92.
The single currency lost ground to the dollar after the Conference Board, a US research group, said its composite index of leading economic indicators had risen in November for the fifth straight month.