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European Markets Nervous After Moody’s EU Concerns

Published: September 4, 2012 | 6:30 am
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European shares are expected to open lower on Tuesday after credit ratings agency Moody’s put the EU on negative outlook.

Asian shares edged lower Tuesday on weak regional economic data. But some risk assets rallied in Asian trade, with Brent Crude rising above $116 and the euro trading back above $1.26 on hopes of more central bank stimulus.

Markets are waiting for an expected crucial announcement on bond-buying from the European Central Bank (ECB) on Thursday.

The FTSE 100 [.FTSE 5758.41 46.93 (+0.82%) ] is called down 3 points at 5,755, the German DAX [.GDAXI 7014.83 --- UNCH ] up 11 points at 7,026 and the French CAC 40 [.FCHI 3453.71 --- UNCH] down 1 point at 3,453.

European shares had rallied at the start of the week, despite gloomy manufacturing data released on Monday from China and the euro zone signaling an economic slowdown in both regions, as investors continued to hope that the ECB will announce a bond buying program to help ailing economies such as Spain and Italy with their borrowing costs when policy makers meet on Thursday.

However, further concerns over the health of the European economy could emerge after Moody’s put the EU’s AAA credit rating on negative outlook. In a statement, the agency said the move is in line with its projections for countries that are the main budget contributors to the EU. Germany, the Netherlands, France and the UK are all already on negative outlook.

Meanwhile, a row could be brewing between the European Commission and Germany over plans for a banking union. Germany’s Finance Minister Wolfgang Schaeuble disagreed with plans for a banking supervision proposal, saying on Monday that it would be unrealistic to launch a banking supervision scheme for 6,000 banks across the euro zone before the end of 2012.

In a busy week of shuttle diplomacy between euro zone leaders, Greek Finance Minister Yiannis Stournaras will visit Berlin on Tuesday to meet with German finance minister Wolfgang Schaeuble. In Rome, Italian Prime Minister Mario Monti is meeting with French President Francois Hollande on Tuesday.

Data released on Tuesday includes Spanish employment data and euro zone Producer Price Index (PPI) data.

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