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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 got their first chance to react to Standard & Poor’s decision to cut the credit ratings of nine euro members today, leaving European stocks edgy and their Asian counterparts on the defensive.
In the year that the Federal Reserve under Ben Bernanke was the most profitable bank in history and international lenders such as Unicredit (UNCFF, quote), Commerzbank (CRZBY, quote) and Credit Agricole (CRARY, quote) are tottering, Republic presidental contender Dr. Ron Paul wants to banish the Fed to “the ash heap of history.”
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.
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.
There is a school of thought that posits the recent publication of a French downgrade by Standard & Poor’s should not be regarded as an error, rather an early warning for shareholders to take action on bank stocks such as BNP Paribras (BNPQY, quote), Societe Generale (SCGLY, quote) and Credit Agricole SA (CRARY, quote).
