European shares wobble after Moody’s downgrade of Spain
EUROPE’S top shares edged lower early today as Moody's became the latest rating agency to downgrade Spain, heightening the cautious mood among investors who are bracing themselves for the outcome of the Greek election over the weekend.
By 0755 GMT, the FTSEurofirst 300 was down 4.27 points, or 0.4 percent, at 982.68, having closed 0.3 percent lower on Wednesday in nervous trade as worries over global growth in the wake of the euro zone debt crisis crimped appetite for risk.
Ahead of an Italian bond auction at which borrowing costs are seen sharply rising, Moody's ratings agency slashed its rating on Spanish government debt by three notches to 'Baa3' from 'A3', which one trader noted is now the same credit risk as Barbados, while cutting its credit rating on Cyprus' sovereign debt by two notches.
"Till there is more calm around Greece and Spain, one should just stay a bit on the sidelines and watch what will happen," Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank, in Germany, said.
Sonnenschein said stocks are attractive on price-to-book and price-to-earnings valuations, but investors would better off adopting a wait-and-see approach to investing until a clearer picture is formed of the situation in Spain and Greece.
After double-digit percentage declines since mid-March when worries over Spain's ability to meet its austerity targets spooked markets, the FTSEurofirst 300 and Germany's Dax now trade on a 12-month forward price-to-earnings of 9.7 and 9.2, respectively, well below historically averages.
With uncertainty swirling around equity markets and Wednesday's downbeat U.S. retail sales figures firming fears that global growth is on the wane, riskier miners were among the top falling sectors on the index.
Echoing the impact from declining consumer demand, loss-making Finnish cellphone maker Nokia shed 5.4 percent after announcing further job cuts and warning the second-quarter loss from its cellphone business would be larger than expected.
Among individual fallers, UK-listed pay television broadcaster BSkyB and former state telecoms company BT fell 6.5 percent and 3.6 percent, respectively, after the pair agreed they will share live domestic rights to English Premier League (EPL) soccer from next year in a deal worth 3.018 billion pounds, a 70 percent jump in value.
Commenting on the impact of the deal for BSkyB, UBS said: "This EPL outcome comes as a negative surprise and we believe market expectations were for a favorable outcome. With increased competition from BT and downside risk to estimates, we would expect a negative reaction in the share price."
Financials were outperforming in early trade with banks and insurers higher although gains looked vulnerable with both sectors already off their early highs, with traders saying this was merely posturing ahead of Greece's weekend election.
A trader said banks in particular look attractive on a price-to-tangible-net-asset-value basis and if there were to be a pro-Europe outcome in Greece over the weekend there was every chance the sector could be a major beneficiary.