Barclays: “S&P will not cut any sovereign rate in a one or two-year period”

By Julia Pastor, in Madrid | After some weeks of good tone in the European stock markets, they suffered the consequences on Monday of the massive rating cut by S&P last weekend. The Ibex35 woke up today with shares drowning in red, except for Ebro Foods and Gas Natural, and is being dominated by volatility for the rest of the day.However, it is the rating agencies’s credibility which is being called into question again, because of this new credit reduction. The EU is accepting the agencies’ requirements and pledging their commitment to fiscal austerity, even if this means to sacrifice growth, but the answer has been a massive credit rate cut. Also, S&P has warned Asia this morning they will be the next in seeing their ratings reduced. Meanwhile, the US is negotiating a new debt ratio ceiling.In spite of all, and according to the investment digital publication Consenso del Mercado, Barclays’s analysts in Spain believe that

“things could have been worse, since it was feared France’s rating to be downgraded by two notches and finally it was just one. Furthermore, it is appropiate to consider that action positively: there are no longer any country under ‘negative watch’, just under ‘negative outlook’, which means that S&P, probably, will not cut any country’s rating in a one or two-year period.”

The experts also said that

“to a great extent, the downgrading should have been anticipated by markets, althought talking about an amount would have been the ‘million dollar question’. We will have the chance to prove the extent of the anticipation over this week’s France, Spain and EFSF bond auctions.

“Definitely, it is possible that this S&P action will not cause collateral damages, except for the EFSF. It also should help the ESM to come in to force sooner, since it will not be supposedly affected by the lose of the triple A rating because it depends on direct contributions, not on guarantees.

“However, the S&P action remind us that Europe has serious problems of growth, and and financial deleveraging at the same time, with the added fact that the European states are persistently engaged in their troubles and therefore turning the EU  into a region of big meetings but little advances.”

It is expected that Fitch and Moody’s will follow S&P. The most dangerous panorama is that if Italy suffers a two notches downgrade by Moody’s or a three notches by Fitch, the country could not be included in the indices more widely attended by investors, like the Barclays linker index, conclude the analysts.