Europe chem stocks steady amid Moody’s negative outlook

24 July 2012 10:38  [Source: ICIS news]

LONDON (ICIS)--European chemical stocks held steady on Tuesday, in line with financial markets, after Moody's Investors Service revised the AAA sovereign ratings outlooks of Germany, the Netherlands and Luxembourg to “negative” from “stable”.

The ratings agency on Monday announced all three countries had been adversely affected by the increased likelihood Greece will exit from the euro and the growing need to provide financial support for other eurozone countries, notably Spain and Italy.

At 08:57 GMT on Tuesday, the UK’s FTSE 100 was 0.04% higher than the previous close, Germany’s DAX had fallen by 0.12%, and the CAC 40 in France was down by 0.07%.

"In Moody's view, a Greek exit from the monetary union would pose a material threat to the euro. Although Moody's would expect a strong policy response from the euro area in such an event, it would still set off a chain of financial sector shocks and associated liquidity pressures for sovereigns and banks that policymakers could only contain at a very high cost," Moody's said on Monday

"Should they fail to do so, the result would be a gradual unwinding of the currency union, which Moody's continues to believe would be profoundly negative for all euro area members," it added.

Even if a Greek exit is avoided, Moody’s said that there is an increasing likelihood other eurozone countries, particularly Spain and Italy, will require greater collective support.

“Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form,” it said.

“These increased risks… have prompted the changes in the rating outlooks of Germany, the Netherlands and Luxembourg,” Moody’s added.

With little movement in the European indices on Tuesday, the Dow Jones Euro Stoxx Chemicals index was holding steady from the previous close, up by 0.46%.

Petrochemical major BASF’s shares had risen by 1.17%, while fellow Germany-based chemical company LANXESS’s shares were trading up by 0.28%.

Shares in Germany-based fertilizer producer K+S and chemical firm Bayer were trading up by 0.04% and 0.07% respectively, while France-based Arkema’s shares were trading up by 1.57% from the previous close.

Norway-based fertilizer producer Yara International saw its shares fall by 1.18%.

On Monday, European chemical stocks had fallen sharply, amid fears Spain will need a full bailout after a second region indicated it will ask the country's government for financial help.

Despite the approval of a €100bn ($122bn) bailout package for Spain to recapitalise its financial institutions, the region of Murcia looks to follow in Valencia's footsteps and apply for funding help under the national government's assistance package. Local media has reported more regions could do the same, further denting market sentiment.

($1 = €0.82)

By: Franco Capaldo
+44 (0)20 8652 3214

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