Spanish downgrade may push Asian markets lower

<p>Asian stocks are expected to trade lower today, not just on negative offshore leads but on news that S&P has downgraded Spain’s credit rating by […]</p>

Asian stocks are expected to trade lower today, not just on negative offshore leads but on news that S&P has downgraded Spain’s credit rating by one notch.

The news sees Spain’s credit rating revised to AA- from AA with a negative outlook, due to weak growth, tightening fiscal conditions and high private sector debt, according to S&P.

The EUR initially fell against the USD but remains above 1.37 at the time of writing. We continue to remain bearish on the EUR and see more downside as traders work through the long process of solving the debt crisis, something we don’t see for a while.

Asian markets will also be eyeing China’s inflation figures closely when they are reported today. The market is expecting the CPI rate to fall to 6.1% – still above the PBOC’s target rate of 4%.

The large decline in energy and materials prices over the past months should provide some respite on inflation. Food is a major contributor to China’s inflation problem outside of energy, and so, the impact of the food category will also be watched by soft commodity traders. For now, traders are taking profits on light volumes in anticipation of the data set.

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