S&P European Downgrades Driving Home (EWQ, EWG, EWO, ALU)

The rumors that Standard & Poor’s is set to downgrade certain European nations after the close is putting pressure on financial markets this Friday.  Is it fitting that it is Friday the 13th?  Reuters broke the news, but the report noted that Germany does not appear to be among the nations being downgraded.  We recently gave our outlook on the nations in Europe most likely to be downgraded.

The DJIA is down about 1% and the iShares MSCI France Index Fund (NYSE: EWQ) ETF is down 2.8% at $19.19 today.  Oddly enough, iShares MSCI Germany Index Fund (NYSE: EWG) is down 3.4% at $19.41 and it is not even supposed to be in the direct downgrade nations.  Alcatel-Lucent S.A. (NYSE: ALU) is taking it on the chin the worst with a drop of 6.1% at $1.69.

What is being reported as a Reuters news break is as follows:

Breaking News: France TV channels say France rating downgraded by S&P, citing government source

What we would like to address is that this has been in the works in for quite some time.  The Euro-zone debt crisis after the U.S. lost its Triple-A rating was the final straw.

Among other nations we see as downgrade candidates, these are Austria and Finland as the two most likely after France and Austria would be before Finland.  iShares MSCI Austria Index Fund (NYSE: EWO) is down 1.4% at $14.03.

As far as Germany, Luxembourg, and the Netherlands, that is going to depend upon the brains over at S&P.  So far it seems that Germany may avoid the downgrade.

JON C. OGG