European shares and the euro fell as trading opened after the warning by ratings agency Moody’s that Britain, France and Austria might lose their triple-A status.
But then they reversed early losses on the release of survey data from the economic research firm ZEW, which showed German analysts and investors more optimistic about the recovery.
Frankfurt trader Robert Halver with Baader Bank said the markets were getting fed up with downgrades: “With so many downgrades, they aren’t being taken seriously any more. The pattern is always the same: something positive happens in the eurozone, like parliamentary decisions on austerity measures, and it’s followed by downgrades. We really don’t take them seriously anymore.“
As well as the increased hopes that Europe’s largest economy is recovering, investors were cheered by the fact that Italy was able to easily sell government bonds, as did Spain and Belgium. That pushed up the euro’s value.
By mid afternoon European shares had turned negative again after weaker-than-expected US retail sales data cast some doubt on the strength of the recovery in the world’s biggest economy.
Investors also remain worried about whether the EU and IMF will accept the new austerity plans just approved by the Greek parliament.
Italy, Portugal and Spain were among six eurozone nations whose ratings were cut, while the move by Moody’s puts the UK’s triple-A status in jeopardy for the first time. There are also fears for Austria and France, whose ability to raise capital might be hit by a downgrade.
These two countries are still smarting from last month’s assessment by Standard and Poor’s which went ahead and docked their triple-As.
Slovakia, Slovenia and Malta have also been downgraded. Shares fell in Spain where Moody’s dished out the largest downgrade, cutting the country’s rating by two notches.
The agency said it was making the move because of uncertainty over the eurozone’s prospects for reform, and it questioned whether European leaders are doing enough to protect economies from the crisis.
The warning to the UK comes amid concern over Britain’s growth prospects. However Moody’s praised Britain’s diverse economy and flexible labour market.