S&P Downgrades

As I understand it, the S&P will announce their downgrades of European sovereigns after the market closes.

Earlier we heard chatter from French officials that France will be downgraded. The latest "source" rumors are that Italy, Spain and Portugal will be downgraded 2 notches, France likely  1 notch, however this will put credit strain on the EFSF which has been trading as if it were already downgraded from AAa and will put more pressure on Germany to back/guarantee the bailout mechanism. So far, there doesn't seem to be any hint that Germany, Finland,  Luxembourg and the Netherlands will be downgraded.

Italy, Spain and Portugal are said to most likely be cut by two notches, giving  Italy a BBB rating. Austria is also expected to be downgraded, how far though is not known, I would suspect 1 notch. There are rumors that Slovakia will also lose their A+ rating. S&P has refused to comment thus far.

Any downgrade of France would effect the currently AAA rated EFSF bailout fund which has been a total disaster since the Euro-zone members decided they would leverage the fund, it has had massive problems attracting even a fraction of the capital the leveraged fund envisioned. With France being the second largest contributor/guarantee behind the EFSF, to maintain it's AAA rating, more AAA countries would have to step up which would be politically difficult, as many have already backed away from any further support.

The downgrade supposedly coming after the market close could cause a bout of selling in to the close as we have a 3 day weekend with US markets closed on Monday in recognition of Martin Luther King day; both bond and equity markets will be closed.

The ONLY silver lining I see is that France may only be downgraded 1 notch instead of 2 as some have speculated. We'll have to see how far S&P goes. It could be a long weekend.