Optimism Fades Over EU Summit Draft after Moody’s Reignite Debt Crisis Concerns

Following optimism over the EU Debt accord on Friday, markets awaked early Monday on new fears that Europe’s debt-trapped nations could be actually downgraded in the next quarter by one of the world’s biggest credit rating agencies. Traders went jittered, stocks slumped sharply, euro dropped and the dollar gained.

Earlier Monday, Moody’s Investors Service said in a statement that it will review the rating of European Union nations in the first quarter of 2012, after last week’s summit failed to craft a credible measure to halt the debt crisis, leaving the euro zone vulnerable to further possible shocks.

More failure to produce effective measures to break the debt impasse in the euro zone fueled fears the European outlook is yet to worsen. Traders went skeptical and began to weigh last week’s summit, with more disappointments after the EU Leaders “mostly” agreed-on new government treaty failed to quell market jitters.

And though Italian and French debt auctions went well with a slight drop in yields at the auction and good demand, yet still was offset by prevailing pressure and rising yields on the benchmark 10-year bonds in the region, especially for Spain that rose again above 6.0, pointing that last week’s optimism was barley seen today.

The U.S. dollar build up momentum against its peers on Monday, after the US dollar Index opened at 78.75 levels and picked up to trade around 79.37. The Euro fell the most in two weeks against the Dollar, where the EUR/USD pair trades 1.3184, compared with the opening level at 1.3370, the British Pound fell slightly against the Dollar.

The GBP/USD pair trades around 1.5592, compared with the opening level at 1.5653. Japanese Yen strengthened on Monday but little changed versus the dollar, after the USD/JPY opened at 77.61 level and currently trades around 77.87.

Stocks in the United States were lower after opening on Monday, as the Dow Jones Industrial Average traded below the 12,000 level with a 1.61 percent drop, while the S&P 500 index was down 1.85% to trade around 1232.

European stock indexes were also lower before closing on Monday, where FTSE 100 was down by nearly 1.62% to trade around 5438 and the DAX was down by nearly 3.2% to close around 5795.

After the dollar rebounded strongly on Monday, gold prices dropped heavily to currently trade around $1663 after opening at almost $1711 an ounce, while crude oil prices fell as well after opening at $99.49 to trade around $98.21 a barrel.