Markets: Europe’s New Fears Rattle Shares, Bonds, Commodities

Reports that France's three major banks are about to see their credit ratings cut this week will make for a rough volatile start to trading this week after the surprisingly nasty sell-off on Friday that saw markets across Europe and the US slump.

According to media reports on Bloomberg and other news services, BNP Paribas, Societe Generale and Credit Agricole could have their ratings cut this week because of their exposure to Greek debt and assets.

Bloomberg reported "Moody's placed the three banks" ratings on review in June to examine "the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels," the rating company said at the time.

"Cuts are expected next week as the review period concludes, said the people, who declined to be identified."

Moody's currently rates BNP Paribas' long-term debt at Aa2, the agency's third-highest investment grade. Credit Agricole is rated Aa1, the second highest, while Societie Generale is also Aa2.

The news, if it comes, will spark speculation that other banks in Europe could see ratings cut.

Adding to the turmoil were weekend reports that the IMF has a report on banks that claims there's a $US273 billion hole in the balance sheets of European lenders.

But the head of the Fund, Christine Lagarde said yesterday the report hadn't been completed and the report of the 'black hole' was misleading.

But the revelation that the IMF is preparing a report on the health of European banks will worry investors in Europe as they await news of the success of the swap of Greek sovereign debt into longer dated new securities.

The deadline for investors wanting to swap (and trigger losses for themselves, but help Greece avoid default) was last Friday.

Confidence in Greece's future wasn't helped by big demonstrations across the country Friday and Saturday.

The bond swap is part of the second bailout package agreed in July.

Reuters reported that it is expected 70% of the private investors would agree to such a move, below the 90% threshold that Greece has said it wants to go through with the deal.

If this shortfall happens, Greek will return to haunt the rest of the eurozone this week.

Greek Prime Minister George Papandreou vowed at the weekend to fully implement reforms demanded by international lenders so that Greece will be able to avoid default and remain a member of the eurozone.

According to the Financial Times, the Greek prime minister told officials from his socialist party and business people "We're travelling on an uphill road during an international storm ... but our first priority is to save the country from bankruptcy".

Thousands of protesters shouting anti-austerity slogans gathered outside a conference centre in the northern city of Thessaloniki where the premier was making his annual economic policy speech on Saturday.

The resignation of the senior most German member of the ECB and the worries about Greek debt and European banks saw the MSCI world equity index drop 3.2% on Friday, to be down 3.7% for the week.

That was one of the three largest falls in the past year.

In New York the Dow Jones Industrial Average fell 303.68 points, or 2.7%, to 10,992.13, leaving it with a weekly drop or 2.2%.

The Standard & Poor's 500 declined 31.67 points, or 2.7%, to 1,154.23, off 1.7% from the prior Friday's finish.

And the Nasdaq Composite Index shed 61.15 points on Friday, or 2.4%, to 2,467.99. That left it down 0.5%.

Currencies fell with the Aussie dollar losing 1.765 USc over the week to close at $US1.470 early Saturday after the sell-off. It lost nearly 1.5 USc overnight Friday.

The euro lost 1.6% against the greenback on Friday dollar at $US1.3668 after touching its lowest in more than six months at $US1.3627.

The euro is down 5% so far this month against the greenback, despite those fears about the US economy.

Gold ended a touch higher, but was unconvincing after soaring to a record high above $1,921 an ounce earlier in the week.

Comex gold for December delivery rose $2, or 0.1%, to finish at $1,859.50 an ounce in New York.

But over the week, gold lost 1% as nervous investors sold the metal to take profits.

Oil and copper also fell on the day.

The sell-off in equities boosted safe-haven German and US bonds.

The 10-year German Bond yield touched an all-time low of 1.74%, while the benchmark 10-year US Treasury yield ended at 1.91% after touching 1.896%, the lowest in at least 60 years.

Australian stocks will open lower today with SPI 200 futures down 70 points to 4106.

On Friday, the benchmark ASX/200 index ended up 6.7 points, or 0.2% and the All Ordinaries index also added 0.2%.

The ASX/200 lost 1.1% over the week.

The MSCI Asia Pacific Index fell 2.7% last week, ending a two-week 3.9% rise.

Tokyo's Nikkei ended down 0.6% on Friday, bringing its weekly loss to 2.4%.

South Korea's Kospi Index shed 2.9%, Hong Kong's Hang Seng Index shed 1.7% and China's Shanghai Composite Index slid 1.2%.

Australia lost 1.1% and in Friday was the only major market in the region to finish with a gain for the day.

The Stoxx Europe 600 Index dropped 3.7% last week, driven by the sell-off on Friday.

The index is down 23% since its peak on February 17 as fears about Greece, Spain, Italy, France and the euro generally have driven investors to sell shares and chase the safety of German, UK and US bonds.

Bloomberg said benchmark indexes fell in all of the 18 western European markets except Switzerland.

France's CAC 40 declined 5.5%, the UK's FTSE 100 slid 1.5% and Germany's DAX plunged a worrying 6.3%

The Swiss Market Index rose 1.3% for the week, its third straight weekly advance.

The move by the Swiss National Bank to peg the franc to the euro seems to have paid off for the moment.

Bloomberg said The Stoxx 600 Banks Index dropped 8.4% last week.

Societe Generale, France's second-largest lender, and BCP, Portugal's second-biggest publicly traded bank by market value, fell 21% and 17%, respectively.

Those loses will be added to this week if those downgrades happen.

In commodities, crude-oil futures settled 2% lower Friday in New York, hit by the combination of a rising dollar and collapsing shares that not even a storm in the Gulf of Mexico could offset.

New York's main Nymex contract, West Texas Intermediate for delivery in October, fell $US1.81 to close at $US87.24 a barrel.

In London, Brent North Sea crude for October delivery dropped $US1.78 to settle at $US112.77 a barrel.

New York oil fell for four of the five trading days last week, but still managed to end the week up 0.9%.

But that gain was misleading, if anything the tone on Friday was very nervous.

That led to losses for oil and most other commodities as equities took a nosedive following the resignation of German member Jurgen Stark from European Central Bank, and reports German officials had readied a plan to help their banks in case Greece doesn't meet bailout obligations.

Copper was also pounded lower on Friday.

Comex futures for December delivery plunged 4.1c or 3.4%, to close at $US 4.0025 a pound, the biggest loss since August 8.

The metal lost 3% over last week, the first weekly fall for three weeks.