STANDARD & Poor’s (S&P) confirmed on Friday that France and Austria have lost their coveted AAA ratings and also downgraded seven other euro area countries, including Italy, Spain and Portugal.
France and Austria were downgraded by one notch to AA+, while Italy, Spain and Portugal were downgraded by two notches.
The downgrade to France made it harder for the European Financial Stability Facility (EFSF) to retain its AAA status, and late last weekend S&P also cut the credit rating of the EFSF to AA+.
A statement from S&P said: “Following the lowering of the ratings on France and Austria, the rated long-term debt instruments already issued by the EFSF are no longer fully supported by guarantees from the EFSF guarantor members rated ‘AAA’ by Standard & Poor’s”.
Tuesday’s optimism – on the back of positive macro data from China, Germany and the US – was initially short lived, with the FTSE 100 falling in to the red in early trading on Wednesday.
Reports that Fitch could downgrade Italy’s credit rating by two notches had many investors worried during Tuesday morning’s trade.
China announced better than expected GDP data for the fourth quarter, easing fears of a hard landing in the world’s second largest economy. The economy expanded by 8.9% year-on-year, less than the 9.1% rise seen in the third quarter but well ahead of the 8.6% forecast.
UK inflation fell sharply in December, with CPI falling from 4.8% to 4.2%, and RPI falling from 5.2% to 4.8%, both in line with consensus.
The FTSE 100 opened flat on Thursday morning, following gains made on Wednesday after the news that the IMF is boosting its lending capacity by at least $500bn, to help countries asking for bail out loans over the next few years.
Helping sentiment was a source from the Greek finance ministry, who told a French news agency that a positive result from discussions between the Government and private creditors is expected in the coming days.
Cruise ship operator Carnival saw shares drop nearly 20% early on Monday after releasing a statement relating to the grounding of a luxury liner off the Italian coast. The company, which owns the Costa Concordia, says the cost of not having the boat in service will be between £54m and £61m.
Royal Bank of Scotland announced it had struck a deal with a Japanese bank to sell its aircraft leasing division for £4.7bn. The bank said the sale of RBS Aviation Capital to Sumitomo Mitsui Banking Corporation would strengthen its Tier 1 capital position and the proceeds would be used to reduce wholesale funding requirements and fund ongoing lending.
AstraZeneca was out of favour after the US Food and Drug Administration (FDA) announced that it wants more clinical data on its dapagliflozin treatment for type 2 diabetes in adults to assess the “benefit-risk” profile of the drug.
Andrew Miller is regional office head of Barclays Wealth in Newcastle