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Financial Focus: 15th December 2010

Moody’s may downgrade Spain’s credit rating;
US Fed cautious despite strong sales figures;
FTSE closes on two-year high but may retreat today;
ECB to double the size of capital cushion;
Japan’s Tankan survey reveals falling confidence.

Moody’s, the credit rating agency, shocked early-rising traders this morning by saying that they may downgrade Spain’s Aa1 rating.  They cite the country’s large debt and funding requirements for 2011 as the reasons.

Following its last scheduled meeting of the year, the US Fed said the economic recovery was still too slow to bring down unemployment and reaffirmed its commitment to buy $600 million in government bonds.  The downbeat message surprised some analysts, as figures released yesterday showed US retail sales had increased for the fifth straight month in November.

The European Central Bank plans to double the amount of money it holds as subscribed capital, reflecting ongoing concerns over struggling countries in the region.  The UK and other countries outside of the Eurozone will not have to contribute to the additional €5.8bn, even though they have shareholdings in the ECB.

US equities closed mostly flat after a late-day sell-off on Tuesday as the Federal Reserve issued another cautious statement on the economy offsetting positive retail sales figures for November.

The FTSE finished at its highest closing level in more than two years as strong sales figures in the US helped shake investors out of their early sluggishness.

The advances seen in European markets yesterday might be short-lived, as the cautious statement from the US Fed is likely to prompt some selling.  Financial bookmakers predict the UK FTSE, German DAX and French CAC will all shed between 0.1% and 0.3% today, although this could be worse if sentiment is further weakened by the news of Spain’s threatened credit rating.

Japan’s Nikkei slipped on Wednesday after hitting a seven-month closing high the day before. This downtrend was mirrored across Asia, with sentiment being dampened by the US Fed’s downbeat message and the Bank of Japan’s Tankan survey for December showing that confidence among big manufacturers fell for the first time in seven quarters.

The euro is under pressure this morning as Moody’s put Spain on review for a possible downgrade on its debt. The single currency is off 0.5% at $1.3314 and down 0.2% at Y111.67. The dollar is up against a basket of its peers by 0.4%, with the greenback rallying sharply after its lows of Tuesday.

Oil prices dropped for a second day in a row after an industry report showed US fuel stockpiles rose last week, and on the announcement by the US Fed that the recovery in the States has been “disappointingly slow”.

Copper declined overnight on profit taking after the metal climbed to a record high yesterday.  Gold, silver, platinum and palladium also declined as the dollar strengthened and the appeal of safe-haven, precious metal declined.  Cotton prices declined for the first time in six days, ending a one month rally and prompting speculation that the higher prices are likely to encourage the US farmers to increase planting acreage.

FTSE 100: 5,891 +0.52%
S&P 500: 1,242 +0.09%
Eurofirst 300: 1,132 +0.28%
Nikkei 225: 10,310 -0.07%

Shanghai Comp: 2,916 -0.37%
$ per €: 1.3308 -0.55%
$ per £: 1.5733 -0.30%
¥ per $: 83.80 +0.19%
¥ per €: 111.52 -0.36%

€ per £: 1.182 +0.24%
WTI Crude: $87.64 -0.72%
Brent Crude: $90.80 -0.45%
Gold: $1,390 -0.95%
Copper: $4.17 -0.69%
Corn: $5.84 -0.64%

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