Fitch has joined Moody’s in putting the United Kingdom’s sterling AAA credit rating on “negative outlook,” warning that the country could be downgraded during the next couple years if its level of public debt is not contained. Credit ratings are a factor in determining a country’s borrowing costs.
After another week of official indecision, European markets are taking comfort from lingering signs of strength in the U.S. economy while Asian stocks surge on the prospect of rising U.S. demand for their products. Car makers in particular are in focus.
Greece began its fourth day of negotiations with its private debt holders in an attempt to reach a debt swapping deal seen as critical to avoiding a default. Meanwhile in Brussels, European Union leaders have agreed to tougher budget discipline measures designed to prevent future crises.
Traders will be focusing on Japanese earnings with several tech giants dominating the coming week in Asia. The earnings outlook is grim to say the least as the strong yen has caused severe headwinds for companies with the heavy percentage of sales outside Japan.
With over $3.5 trillion in foreign reserves, Beijing is moving towards direct investment (farms and factories) to support its domestic economy rather than portfolio investment in foreign securities to increase liquidity, which will mean greater revenues for multi-nationals selling to consumers in China. Think Nokia (NOK, quote), Nestle (NSRGY, quote), Honda (HMC, quote) and Unilever (UL, quote).
Legendary investor Jim Rogers once stated that a weak currency was the sign of a weak economy, which was the sign of a weak government. Due to the strong Japanese yen, Toyota Motors (TM, quote) is operating at a significant disadvantage as German car makers such as Volkswagen (VLKAY, quote) and Mercedes Benz (DDAIF, quote) benefit from the weak euro.
Markets in Asia closed lower after light trading on Tuesday, as investors await the reopening of markets in the United States today following the Christmas holiday and a drop in unemployment claims last week. Stock markets in Australia, Hong Kong and New Zealand remained closed for the holidays.
Volkswagen, Porsche, Ford — global auto makers keep posting blow-out numbers, and even earthquake-wounded Japanese names look strong in the long run.