Kim Jong Il’s Death Ensures Markets Start in the Red

So he really was ill. Over the weekend Kim Jong Il, the North Korean Dictator, passed away and all semblance of a quiet start to the last week before Christmas died with him. For the markets it is very much a case of “better the devil you know” when you’re dealing with maniacal nuclear isolationist states and the news of the “Dear Leader’s” death has been greeted by stock market losses in Asia and Europe.

Casting our mind back to Friday we had a fair bit of action from ratings agencies but no hammer blow or French downgrade. The rumours at the beginning of the day were that Italy and Spain were to be downgraded after the close of the European session, which then later transformed into a possible downgrade of France. The movement never came however but there was a downgrade for Belgium from Moody’s. They cut the country’s rating by 2 levels and it remains with a negative outlook i.e. that further ratings action may be taken in the future. The reasons for the downgrade were no surprise; rising sovereign borrowing costs and increased liabilities in dealing with the disaster that is Dexia bank.

The ratings agency Fitch was also in the news as it moved the outlook lower for Spain, Belgium, France, Ireland and Italy mainly, it said, as a reaction to the failure of the last European summit and that there was still no credible backstop for the EU in the form of a lender of last resort. The big concern remains that there is a ratings change for France in the near future and this will keep European and other risky assets depressed until clarification is made.

There is a conference call scheduled in the EU today between leaders to discuss EUR200bn in funding through the IMF and also how a fiscal compact could be structured. We doubt this will trigger any great fireworks in the markets however, as there is a real lack of interest on trading desks at the moment.

Across the Atlantic, it was politicians that were once again in the news as Democrats in the Senate voted to extend tax cuts put in place by Pres. George Bush. It does seem likely however that we will see the House vote the measures down given the Republican majority in that part of Congress.

There is really nothing to be concerned about on the data calendar today although we have GFK consumer confidence from the UK tonight at midnight which could hurt sterling’s recent run. Rates fiund themselves very close to where we were trading on Friday as you can see below.

Good luck.

Latest exchange rates at time of writing