French downgrade next in line as EU summit is postponed

Rumours remain plentiful ahead of the (now postponed to Oct 26) EU summit with a EUR 940 billion package to overcome the crisis, and to add more flavour to the uncertainty surrounding the sovereigns in the Eurozone Standard & Poor's has suggested that a downgrade of France's triple-A rating may be imminent should the economy deteriorate.



France's AAA rating in danger? The triple-A ratings of France and Germany were vital for the construction of the European Financial Stability Facility (EFSF) as they allow the EFSF to borrow cheaply in credit markets due to being awarded a triple-A rating of its own. But if one of the pillars of the EFSF's AAA rating, France, starts to unravel the EFSF itself may be due for a downgrade. S&P has warned that should the economy weaken further France is among a group of nations in the Eurozone, which faces a downgrade.

Economic data: IFO out of Germany shortly is the only piece of interesting economic data today with Canadian CPI a distant second. Consensus looks for yet another deceleration in the IFO Business Climate series to 106.2 in October from 107.5 and a peak of 115.4 in February of this year. A decilne today would mark the fourth consecutive monthly decline and ties in well with other data suggesting that former locomotive of growth in the Eurozone is bound for more weakness following the disappointing 0.1 percent QoQ GDP print in 2Q.



In Canada analysts look for a 0.2 percent (not seasonally adjusted) increase in CPI in September which will keep the annual inflation steady at 3.1 percent. The Core CPI is expected to increase by a similar amount (+0.2 pct.) and clock in at 2 percent year-on-year.