Ratings agencies keeping an eye on European countries

<p>Asian shares are expected to open higher but will be dented by news from S&P that it has placed 15 Euro nations on credit watch […]</p>

Asian shares are expected to open higher but will be dented by news from S&P that it has placed 15 Euro nations on credit watch for a potential downgrade. This includes Germany and France which might be stripped of their AAA credit rating once the review is finalised.

While credit rating changes have previously been absorbed by the market, the U.S. being the best case, it does signal the slowdown in Europe and impact it will have on Asian manufacturing volumes.

We are still eyeing the response from China as policy makers meeting later this week to decide the appropriate monetary measures for 2012. The Euro fell below 1.34 below the U.S. dollar on the news.

Metals markets responded to the S&P news with copper down around 0.8% immediately after the reaction. A failure to break US$3.60/lb could see another fall towards last week’s levels but for now copper seems well above the US$3/lb physiological level which we don’t think will be tested in 2011. The U.S. market closed in positive territory before the downgrade was officially announced with the S&P500 up around 1% at its close.

The Australian dollar was slightly higher, buying 1.0261 U.S. dollars ahead of the Reserve Bank’s meeting today on rates. The market is expecting another 25 basis point rate cut.

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