Portugal’s credit rating knocked to junk status; China hikes rates
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — European stocks fell Wednesday, led by banks after Moody’s Investors Service downgraded Portugal’s credit rating four notches to below investment grade and as investors absorbed China’s latest hike in interest rates.
The Stoxx Europe 600 index XX:SXXP -0.42% fell 0.4% to 274.45 in afternoon trading. The index gained 0.03% in the prior session, which marked a seven-session winning streak.
U.S. stock futures pointed to a lower open for Wall Street. Futures added to losses after the People’s Bank of China raised key interest rates by 0.25 of a percentage point. Read more on Indications
That added to jitters in the market spurred by more worries on the sovereign-debt front.
After the close of European trading on Tuesday, Moody’s cut Portugal’s rating to Ba2, two notches into junk status, and assigned it a negative outlook.
The agency cited growing risk that Portugal may need another round of official financing amid a growing likelihood it won’t be able to get access to capital markets in the second half of 2013 and for some time afterward.
Losses for peripheral markets picked up. Portugal’s PSI 20 index fell 2.7% to 7,145.37, with heavy losses for financials: Banco Comercial Portugues SA PT:MBC -7.36% fell 7.3%, Banco BPI SA PT:BPI -4.96% dropped 5.8%, Banco Espirito Santo SA PT:BES -5.57% shed 5.6% and Banif SGPS SA PT:BNF -4.32% sank 5.3%.
Spain’s IBEX 35 index XX:IBEX -1.68% also fell, down 1.7% to 10,205.20. Banks including BBVA SA ES:BBVA -3.39% BBVA -4.47% , Banco Santander SA STD -3.64% ES:SAN -3.07% and Banco Popular Espanol SA ES:POP -3.59% own Portuguese banks and hold part of the country’s sovereign debt.
Shares of Banco Santander SA STD -3.64% ES:SAN -3.07% as well as BBVA slumped around 4%. Shares of Banco Popular sank 4.5%.
Moody’s downgrade “has huge implications not only for the existing debt, but for Portugal’s ability to access future financing,” said Duarte Caldas, analyst with IG Markets in Lisbon, who expects other main ratings agencies will follow.
On Monday, Standard & Poor’s Ratings Services said proposals by French banks to roll over some of their Greek debt would put the country in “selective default.” Media reports said major euro-zone banks are meeting Wednesday in Paris to figure out how investors will participate in a restructuring of Greek sovereign debt.
Stepping to the sidelines
Caldas said he would stay out of stock markets especially for July and August: “There’s no need for you to be invested with all the risks there are. We’re not only talking about Greek debt, but the European periphery situation and purchasing managers indexes have also hit minimums.”
Other observers say the markets have likely taken into account the bulk of sovereign-debt issues.
