European Summit: High Hopes and Possible Downgrades

European nations are supposed to vote this Friday on an agreement that was worked out between Germany and France. The agreement hopefully will tighten fiscal controls for Euro zone countries. Hopes that the Euro zone will figure out long-lasting solutions to its sovereign crisis prevailed on Wednesday, inspiring more buying and pushing stocks to a close at … mixed gains and losses.

Some traders are getting impatient waiting for Europe to resolve its debt crisis. As the summit date draws close (it starts on Thursday), some analysts are predicting that markets will become even more volatile as previous EU summits used to disappoint investors. As the result of these watchful expectations, the markets were quite jumpy. On Wednesday the Dow Jones closed 46.24 higher. The Nasdaq composite index fell 0.35. Prices of U.S. government debt rose this week. For example, the yield on the 10-year Treasury note fell to 2.03 percent from 2.09.

The Standard and Poor’s rating agency warned of possible upcoming downgrades for some European Union nations (mostly those who use the Euro) unless some kind of a long-term solution will be reached to resolve sovereign debt crisis. In fact, if the downgrade indeed takes place, it will also affect some of the largest euro-zone banks such as BNP Paribas and Deutsche Bank. The European Union borrowing will be affected too, most likely driving borrowing costs up, making it more costly to support financial aid programs for EU member nations.