Northern, WI 9/20/2011 (PennyPayDay) – Untitled Document European investors are experiencing a switchback ride, with early losses turned into healthy gains at the end of the morning session as optimism grew that Greece will stave off a default on its sovereign debt. Markets shrugged off a downgrade of Italian sovereign debt by ratings agency Standard & Poor's (S&P), suggesting that the decision was already largely priced in to stock prices, even if the timing of the decision caught some on the hop.
The agency said the cut, from A+ to A - five levels above junk status - was prompted by Italy's poor economic growth and a “fragile governing coalition”.
"We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," S&P said.
S&P has maintained its outlook as negative, a stance it has taken since May.
As for Greece, the country's Finance Minister, Evangelos Venizelos, described discussions with European officials on the subject of Greece receiving the next slug of bail-out money as "productive".
Another call is expected to take place today, after technical discussions, and an announcement is likely on Wednesday, according to reports in the US financial press.
The MIB index in Milan is 154 points higher at 14,240, while in Paris the CAC is up 32 points at 2,972.
In Germany the DAX is up 115 points at 5,531 as German Chancellor Angela Merkel moves to keep her party's coalition junior partner, the FDP, on board after the FDP received a pasting over the week-end in a Berlin election.
The FDP has broken ranks with Merkel's Christian Democrat (CDU) party over the Eurozone crisis, becoming increasingly critical of Germany's role as the cash dispenser for Europe's more profligate nations.
"We will continue our work as a government and I don’t think it’s become more difficult,” Merkel told reporters in Berlin yesterday, responding to questions about the health of the coalition government.
There was some discomfiting news on the economic front for Germans, as the economic climate index for Germany fell to -43.3 in September from -37.6 in August.The market consensus was looking for a reading of -43.9. It is the seventh consecutive decline for this important leading indicator, which is now far from its historic average of 25.6.
In France, BNP Paribas is down, even as the French lender's chairman, Michel Perebeau, moved to assure markets of the strength of the company's capital base.
Speaking in a radio interview Perebeau said the bank has "no need at the moment for any recapitalisation."
French banks are in focus after newspaper reports claimed that German engineering giant Siemens withdrew around €0.5bn of funds from a large French bank two weeks ago and parked them with the European Central Bank (ECB).
The German industrial group withdrew the money partly because of concerns about the future financial health of the unnamed French bank and partly to benefit from higher interest rates paid by the ECB.
News agency reports, meanwhile, suggest that the Bank of China (BoC) has suspended foreign exchange swaps with European banks, with some speculation that the BoC reached its limit on trading credit lines while others claim the halt was in reaction to last night's debt downgrade for Italy.
Lender Societe Generale was the biggest faller in the morning session in Paris, while sector peer Credit Agricoleedged lower after a firm start.
Swiss cement maker Holcim is firmer after unveiling its new chief executive officer, Bernard Fontana, who has been poached from steel maker Aperam.
German business software developer SAP is wanted after US District Judge Phyllis Hamilton appeared to take the German company's side in its legal bust-up with US rival Oracle.
In a recent court case, SAP was ordered to pay $1.3bn to Oracle in a copyright infringement case, but SAP got the award reduced to $272m on appeal. Now, Oracle is contemplating appealing against the damages reduction, but Judge Hamilton said that there should be a new trial for damages if Oracle rejects her decision.
Sticking in court circles, German utility companies E.ON and RWE are both on the up after a Hamburg court suspended a levy on taxes that use nuclear fuel.
Parcel delivery firm TNT Express has been downgraded by Credit Suisse to "under-perform" from "neutral".
Networking equipment firm Alcatel-Lucent is on the up after a 'buy' note from UBS. The Swiss bank said second-half 2011 guidance appears "reasonable" for Europe as well as North America.
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