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Christian Noyer, head of the Bank of France, has publicly chastised Great Britain for its opposition to the euro zone agreement and overall economic policies. As reported in the Financial Times, Francois Baroin, the French Finance Minister, stated, “The economic situation in Britain is very worrying, and you’d rather be French than British in economic terms.”
European banks like Paribas (BNPQY, quote), Unicredit (UNCFF, quote) and Credit Agricole (CRARY, quote) are soaring on relief after the Greek Parliament passed austerity measures. Although this is step one of many, the euro as well was lifted in overnight trading sending a traders a like a small ray of hope that the cloud of a very messy crisis lifts soon.
Traders who spent the morning selling the rumor that Standard & Poor’s would soon downgrade the sovereign credit of France are now buying the news, pushing the battered euro off its intraday lows.
Shares across the Asia-Pacific fell as doubts that the euro zone will be able to refinance its massive sovereign debts suppressed investors’ appetite for risk and pushed yields on French bonds upward.
News of a steep drop in new unemployment benefits claims in the United States sent stocks in Asia and Europe up Friday. Unemployment claims for the week dropped to 364,000, their lowest level in three-and-a-half years.
Despite a move by the European Central Bank to offer cheap loans that may relieve the euro zone credit crunch, doubts among investors that it would inject liquidity into Europe’s most troubled economies sent Asian stocks down on Thursday.
In a recent interview, PIMCO head Bill Gross stated that he expected a low interest rate environment to be maintained by the Federal Reserve, the European Central Bank and the Bank of England for “three, four or five years.” If this is true, this is no time to own French banks as low interest rates for the next half-decade mean that the financial sector is still in woeful condition and will not be recovering any time soon.
Asian markets rallied Wednesday on the back of growing optimism in Germany’s economy, the euro zone’s largest, and a drop in yields for Spanish debt. The gains continued a steady rise after news of the death of North Korea’s leader Kim Jong Il on Monday sparked fears of regional instability.
BNP Paribas (BNPQY, quote), the biggest bank in France, just sold $2 billion in credit default swaps to insure its holdings in the country’s sovereign debt. UniCredit SPA (UNCFF, quote), the largest financial insitution in Italy, also has significant exposure to sovereign debt credit default swaps, which pay off the holder in exchange for the underlying securities or the cash equivalent should there be a default by the borrower.
