Forexpros – European stock markets were sharply lower on Monday, after Standard & Poor’s downgraded the U.S. government debt rating for the first time in history, prompting investors to shun riskier assets.
During European morning trade, the EURO STOXX 50 slumped 1.1%, France’s CAC 40 tumbled 1.75%, while Germany’s DAX 30 retreated 2%.
Ratings agency Standard and Poor’s downgraded the U.S. sovereign debt rating by one notch to AA+ from AAA after markets closed Friday.
The ratings agency kept the U.S. rating outlook at negative, suggesting a further downgrade could be possible within the next 12 to 18 months.
S&P said the debt ceiling deal reached by lawmakers to cut the federal deficit by an estimated USD2.1 trillion over a decade did not go far enough and “America’s governance and policymaking is becoming less stable, less effective, and less predictable than what we previously believed.”
Automakers performed poorly, amid the uncertain global economic outlook. Germany’s BMW and Volkswagen saw shares tumble 5.1% and 4.7% respectively, while shares in French carmakers Peugeot and Renault plunged 7.3% and 5.9%.
Shares in the financial sector, many of which have large exposure to U.S. Treasuries, were broadly lower. German lenders Deutsche Bank and Commerzbank were down 1.3% and 3.7% respectively, while Societe Generale shares slumped 2.9%.
But shares in Banco Santander jumped 2.1%, while Italian lender Unicredit advanced 0.9% after the European Central Bank said late Sunday that it “will actively implement” its bond-buying program, indicating that it will likely buy Spanish and Italian government bonds.
In London, the commodity-heavy FTSE 100 fell 1.5% as shares in raw material producers led losses, amid concerns over a slowdown in global demand.
Mining giants BHP Billiton and Rio Tinto saw shares drop 3.6% and 4% respectively, shares in copper producer Xstrata tumbled 4.6%.
Meanwhile, the outlook for U.S. equity markets was sharply lower as U.S. traders get their first chance to react to Friday’s U.S. debt downgrade.
The Dow Jones Industrial Average futures pointed to a loss of 1.9%, the S&P 500 futures tumbled 2%, while the Nasdaq 100 futures plunged 2.5%.
Leaders from the Group of Seven leading economies said Sunday that they were ready to take every action necessary to stabilize financial markets.
“We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth,” the G-7 said in a statement.
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