Nicolas Sarkozy, the French president, Christine Lagarde, managing director of the International Monetary Fund (IMF) and Angela Merkel, the German chancellor, at the Eurozone summit, Brussels, July 21, 2011

In its annual credit report on France, Moody's Investors Service says in a report issued Monday evening that the country's Aaa rating with a stable outlook reflects the French economy's strength, the robustness of its institutions and very high government financial strength.

France's sustainable GDP growth has been supported by the economy's large size, high productivity, broad diversification and its track record for innovation, together with high private sector savings and an only moderate built-up of household and corporate liabilities. In Moody's opinion, these features provide ample capacity to absorb shocks -- as demonstrated by the resilience of domestic demand during the global crisis -- although some risk factors (such as the weak prospects for global growth) continue to constrain medium-term economic performance.

However, Moody's notes that the government's financial strength has weakened, as it has for other Eurozone sovereigns, because the global financial and economic crisis has led to a deterioration in French government debt metrics -- which are now among the weakest of France's Aaa peers. Moody's nevertheless continues to deem France's financial strength to be very high, particularly when compared with debt affordability (interest burden in relation to government revenues) which remains comfortable. But very high debt finance-ability in an uncertain financial and economic environment, which is a crucial feature of Aaa governments, rests on investors' confidence in the government's ability and in its willingness to tackle unforeseen challenges.

Moodys said France may face a number of challenges in the coming months -- for example, the possible need to provide additional support to other European sovereigns or to its own banking system, which could give rise to significant new (contingent) liabilities for the government's balance sheet.

The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government's Aaa debt rating. Moody's said it notes that the French government now has less room for manoeuvre in terms if stretching its balance sheet than it had in 2008. France's continued commitment to implementing the necessary economic and fiscal reform measures as well as visible progress in achieving the targeted sustainability improvements will be important for the stable outlook to be maintained.

The ratings agency said that over the next three months, Moody's will monitor and assess the stable outlook in terms of the government's progress in implementing these measures, while taking into account any potential adverse economic or financial market developments.

IBM reported on Monday that revenue and earnings rose in the third quarter but were below Wall Street analysts' estimates.

Third-quarter net income was $3.8bn compared with $3.6bn in the third quarter of 2010, an increase of 7%. Operating (non-GAAP) net income was $4.0bn compared with $3.6bn in the third quarter of 2010, an increase of 9%.

Total revenues for the third quarter of 2011 of $26.2bn increased 8% (3%, adjusting for currency) from the third quarter of 2010.

First Derivatives, the Newry software firm on Tuesday announced a rise in profit before tax for the first-half of 2011 to £3.4m from last year's £3.2m. Profit before tax and associate income was £3.3m this year, compared to £2.8m. Basic earnings improved to 16.3 pence per share from 15.6 pence per share.

Revenues for the period were £22.4m, rising from the prior year's £17.7m mainly due to the growth consulting revenues.

Goodbody's Clodagh McCarthy commented - - "Consultancy was the main driver of sales, up 39% to £15.4mm (£11.1m in H111), well ahead of our forecasts of £12m. Similar to FY11, FDP saw growth in core markets such as the US and UK. The software division grew c.5% to £7m in line with our forecasts and saw a 51% increase in recurring revenue streams.

Considering the current market backdrop, we view these results as encouraging. As expected, prior M&A activity and continuous product investment had a positive impact on FDP’s H1 results as the Delta product suite continues to gain traction in the market place. For example, Delta Stream has developed healthy pipelines after securing sales in both Asia and Europe while Delta Algo has successfully gone live with a large investment bank. Likewise, FDP has significantly enhanced its data management function with the recent launch of the Delta Data factory service and again notes a strong pipeline. With a number of products at the early stages of development and the upcoming roll out of Delta Flow (previously Delta Realstream) to new and existing customers, we are confident that FDP can maintain this momentum into H2.

With ongoing investment into product development and consultancy and continuous expansion within the existing client base, management remains confident of achieving profits for the full year in line with market expectations. Currently consensus has sales of £46m, with EBIT of £7.6m. Our positive stance on FDP is underpinned by on-going product investment. FDP is currently trading at 13.5x compared on sector average of 20x."

Alternatively, expectations are deliberately being played down because Sunday’s decisions are likely to fall short of 'comprehensive.'One hopes it’s the latter but fears it’s the former. Merkel and Schauble have previously warned markets on expecting a big-bang solution at these crisis summits and these comments have in the past proved to be prophetic. It is likely that yesterday’s comments are in a similar vein. A spokesman for Merkel said that the 'dreams doing the rounds,' that everything will be over on Monday, were misplaced and that the search for a crisis resolution will continue into next year. Although it was not stated yesterday, differences on how to deal with the effect of the fall-out in the banking system of a Greek default between France and Germany are still likely to be the major problem.

Unsurprisingly, markets fell back on the news yesterday after rising expectations boosted markets last week. If past history is any guide, we should not expect too much from the coming announcements at the weekend."

No Surprises in China GDP Data: Mark Matthews, head of research Asia, Bank Julius Baer, discusses China GDP data and what it means for the economy:

Launching our first formal forecasts for the UK economy: Conall Mac Coille, chief economist at Davy, comments - - "Today we have published our first formal Davy projections for the UK economy. We now expect UK GDP to grow by 0.7% in 2011 and by 1.0% in 2012, well below the current consensus forecast average of 1.0% for 2011 and 1.5% for 2012. These projections imply that UK GDP growth will be broadly flat in the second half of 2011, with one quarter of negative growth, before picking up very gradually in 2012.

Consumer spending is expected to continue falling through 2011 before only gradually picking up in 2012. The adjustment in consumer spending in the UK has reflected the negative impact on real incomes from high CPI inflation. CPI inflation has been pushed up by energy price increases, the increase in value added tax to 20% and the pass-through of the weak sterling exchange rate to import price inflation. We expect CPI inflation to fall back to just above 2.0% in 2012 so the adverse impact on real incomes dissipates. But consumer spending will fall by 0.3% in 2012 on average. The poor outlook for UK consumer spending also reflects developments in the labour market. UK employment fell by 0.6% in the three months to August, with the unemployment rate rising to 8.1%. In this environment, nominal pay growth is likely to weaken.

In recent months, the intensification of the European debt crisis has led to a sharp deterioration in confidence. It now appears that both households and companies are postponing spending. Surveys of investment intentions have fallen back, and companies have used excess cash to buy back equity, bonds and reduce bank loans. So the modest recovery in UK business investment seen over the past year is likely to stall in the second half of 2011 and early 2012.

The pace of the deceleration in the euro area economy has caught us by surprise. Hence, exports are expected to slow sharply in 2012 to just 3.4%. The risks around this projection depend on the outcome of current negotiations to address the European debt crisis. But our central view is that a quick resolution of the debt crisis is unlikely, so that demand for UK exports will slow.

As we set out in a research note in January, UK exports were unlikely to grow sufficiently strongly in 2011 to offset the negative impact of the fiscal adjustment on domestic demand. Hence, the Bank of England was never likely to raise interest rates this year. This view has largely been borne out.

However, our first formal forecasts published today set out an even bleaker outlook for the UK. The sharp collapse in confidence from the European debt crisis has led to slower demand for UK exports and companies postponing investment spending. This means that the second half of 2011 and 2012 will be very difficult for the UK economy."

- - See link to report in Box below.

US Markets

In New York Monday, the Dow dipped 247 points or 2.13% to 11,397.

The S&P 500 slid 1.94% and the Nasdaq slipped 1.98%.