The Group of Seven finance ministers and central bank officials will conduct hastily arranged conference calls on Sunday to discuss their response to the twin debt crises in Europe and the US.
The move will follow a separate conference call on Sunday evening of the European Central Bank’s governing council, which is expected to discuss the possible purchase by the ECB of Spanish and Italian bonds when markets open on Monday, two European sources, who asked not to be identified, told the Financial Times.
Friday’s controversial move by Standard & Poor’s to downgrade the US credit rating by one notch to double A+ has injected urgency into the discussions, according to Kyodo, a Japanese news agency.
Deputy finance ministers from the Group of 20 spoke overnight on Saturday.
A Japanese official on Sunday told the Financial Times that Tokyo had not changed its view of US Treasuries following the downgrade.
“Japanese authorities think there is no problem regarding the creditworthiness of US Treasuries and US government bonds will continue to be attractive assets,” the official said. Tokyo has the second-largest holdings of US Treasuries after Beijing.
Early indications were that global authorities would maintain their positions in US debt. Officials in Korea, Russia and the Middle East echoed the Japanese comments.
Shares listed on equity markets in the Middle East, which were open on Sunday,tumbled on the back of the news of the downgrade. Israel’s TA-25 fell by the most in almost 11 years, closing down 7 per cent. Dubai’s main index dropped by the most since February and Saudi Arabia’s main bourse closed down 5.5 per cent on Saturday.
A conference call of the ECB’s governing council is unlikely to be held before Sunday evening in order to co-ordinate action with the US and Asia, according to a European Union official.
“The ECB is no longer the leader,” according to one official, in a sign that the bank will wait to see what measures the US will take. “The issue is what happens with the US downgrade. Italian and Spanish bonds are no longer at the top of the agenda.”
The ECB council is still expected to have a vigorous debate on whether it should intervene to buy Italian and Spanish bonds, whose yields rose sharply last week as the contagion in the eurozone debt crisis started to spread. Reuters reported an ECB source saying that the council would also look at possible emergency liquidity measures to prevent money markets freezing.
The council agreed last week to intervene in the market, but only to buy Irish and Portuguese bonds. Silvio Berlusconi, Italian prime minister, on Friday announced plans to accelerate austerity measures and introduce a constitutional amendment to set a balanced budget. Italy handed details of its decisions to the ECB on Sunday.
The move was seen by some as clearing the way for the ECB to buy Italian bonds. But opposition is thought to be likely to come from the German and Dutch central banks, which argued against such intervention last week.
Analysts are not expecting a drastic sell-off when the main equity markets open on Monday.
David Miller of Cheviot Asset Management said: “Markets are unlikely to rise but a meltdown is not on the cards. Post-2008 many investors have developed their own credit-rating systems and so are less reliant on rating agencies.”
Howard Archer of IHS Global Insight said: “S&P had indicated that it was likely to happen, so the move should have been largely priced in already by equity markets. But, with sentiment so fragile, it could still fuel further losses.”
The S&P move – criticised by the US Treasury and questioned on Saturday by billionaire investor Warren Buffett – highlights the weakened fiscal stature of the world’s most powerful country. The downgrade is the first of the US by a leading rating agency and could push up US bond yields at a time of economic vulnerability and create a long-term threat to the status of the US dollar as the world’s reserve currency.
China on Saturday criticised Washington in a strongly worded statementthrough the official state news agency Xinhua, saying the US only had itself to blame and called for a new stable global reserve currency.
The move will follow a separate conference call on Sunday evening of the European Central Bank’s governing council, which is expected to discuss the possible purchase by the ECB of Spanish and Italian bonds when markets open on Monday, two European sources, who asked not to be identified, told the Financial Times.
Friday’s controversial move by Standard & Poor’s to downgrade the US credit rating by one notch to double A+ has injected urgency into the discussions, according to Kyodo, a Japanese news agency.
Deputy finance ministers from the Group of 20 spoke overnight on Saturday.
A Japanese official on Sunday told the Financial Times that Tokyo had not changed its view of US Treasuries following the downgrade.
“Japanese authorities think there is no problem regarding the creditworthiness of US Treasuries and US government bonds will continue to be attractive assets,” the official said. Tokyo has the second-largest holdings of US Treasuries after Beijing.
Early indications were that global authorities would maintain their positions in US debt. Officials in Korea, Russia and the Middle East echoed the Japanese comments.
Shares listed on equity markets in the Middle East, which were open on Sunday,tumbled on the back of the news of the downgrade. Israel’s TA-25 fell by the most in almost 11 years, closing down 7 per cent. Dubai’s main index dropped by the most since February and Saudi Arabia’s main bourse closed down 5.5 per cent on Saturday.
A conference call of the ECB’s governing council is unlikely to be held before Sunday evening in order to co-ordinate action with the US and Asia, according to a European Union official.
“The ECB is no longer the leader,” according to one official, in a sign that the bank will wait to see what measures the US will take. “The issue is what happens with the US downgrade. Italian and Spanish bonds are no longer at the top of the agenda.”
The ECB council is still expected to have a vigorous debate on whether it should intervene to buy Italian and Spanish bonds, whose yields rose sharply last week as the contagion in the eurozone debt crisis started to spread. Reuters reported an ECB source saying that the council would also look at possible emergency liquidity measures to prevent money markets freezing.
The council agreed last week to intervene in the market, but only to buy Irish and Portuguese bonds. Silvio Berlusconi, Italian prime minister, on Friday announced plans to accelerate austerity measures and introduce a constitutional amendment to set a balanced budget. Italy handed details of its decisions to the ECB on Sunday.
The move was seen by some as clearing the way for the ECB to buy Italian bonds. But opposition is thought to be likely to come from the German and Dutch central banks, which argued against such intervention last week.
Analysts are not expecting a drastic sell-off when the main equity markets open on Monday.
David Miller of Cheviot Asset Management said: “Markets are unlikely to rise but a meltdown is not on the cards. Post-2008 many investors have developed their own credit-rating systems and so are less reliant on rating agencies.”
Howard Archer of IHS Global Insight said: “S&P had indicated that it was likely to happen, so the move should have been largely priced in already by equity markets. But, with sentiment so fragile, it could still fuel further losses.”
The S&P move – criticised by the US Treasury and questioned on Saturday by billionaire investor Warren Buffett – highlights the weakened fiscal stature of the world’s most powerful country. The downgrade is the first of the US by a leading rating agency and could push up US bond yields at a time of economic vulnerability and create a long-term threat to the status of the US dollar as the world’s reserve currency.
China on Saturday criticised Washington in a strongly worded statementthrough the official state news agency Xinhua, saying the US only had itself to blame and called for a new stable global reserve currency.
