Confidence Damped as French Rating Downgraded

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November 20, 2012 11:57 PM EST

Shares in European session slipped amid Moody’s downgrade of French credit rating to Aa1 from Aaa with the negative outlook maintained. According to the rating agency, the key driver of the downgrade was “the risk to economic growth, and therefore to the government's finances, posed by the country's persistent structural economic challenges”. Moreover, Moody’s stated that the country has lost competitiveness substantially. Yet, the French government defended and stressed that the downgrade “does not call into question the economic fundamentals of our country, the efforts undertaken by the government or our creditworthiness”.

Gold remained firm Tuesday after the $20/oz rally yesterday. While stock markets retreated from the rise a day earlier, the yellow metal was supported by the news that billionaire investors Soros and Paulson remained bullish on gold. The SEC filing data suggested that Paulson continued to hold 21.8M shares in SPDR Gold Trust at the end of September, unchanged the amount as of June 30. For Soros, investment in the trust was raised to 1.32M shares, or US$ 221.7M. While gold continued to move within a range of 1700 and 1750, the risk is skewed to the upside and the uptrend would resume probably in the beginning of 2013 as central banks re-engage in standard and/or non-standard easing measures.

At the RBA’s minutes for the November meeting, policymakers viewed the pause in rate cut as appropriate. Yet, they did not rule out the chance of further easing. Indeed, the likelihood of another rate cut in December is quite high. At mentioned in the minutes, “the effects of the earlier reductions in the cash rate were, meanwhile, continuing to work their way through the economy, and members expected that further effects of these changes were yet to be observed”. Yet, further monetary easing is likely as "members considered that further easing may be appropriate in the period ahead”.

On the dataflow, Germany’s PPI eased to +1.5% y/y in October from +1.7% a month ago. The market had anticipated a milder moderation to +1.6%. In the US, housing starts probably fell to 840K in October from 872K a month ago. Building permits might have dropped to 865K during the month from 894K in September.

Oil and Gold Reports contributed by Oil N' Gold

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Oil and Gold Reports contributed by Oil N' Gold

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