Italian Sovereign Debt Rating Downgraded by S&P

September 20, 2011

European equities rebounded after Monday’s drop despite more unsettling news from the region.

  • S&P downgraded Italian long-term sovereign debt to a rating of A from A+.  A reassessment by Moody’s is thought also to be likely.
  • Press reports surfaced that the German industrial company Siemens withdrew half a trillion euros recently from one of the largest French banks.
  • The Greek government is rumored to be considering a referendum to see if voters want to stay in the economic and monetary union.
  • The ECB appears to be buying Italian government debt today.
  • Greece will be engaged in more talks with its EU/ECB/IMF benefactors via teleconference today.
  • The ZEW Institute of investor expectations regarding Germany fell to minus 43.3 in September, lower than expectations, from minus 37.6 in August, minus 15.1 in July, minus 9.0 in June and +3.1 in May.  The current conditions index dropped to 43.6 from 53.5 in August and 90.6 in July.
  • The ZEW expectations index for the whole euro area dropped to minus 44.6 from -40.0 in August and minus 7.0 in July, while the index of current conditions slid to minus 27.9 in August from minus 19.1 in July and +2.3 in June.

Share prices have so far risen 2.4% in Germany, 1.6% in France and 1.4% in Great Britain, but Japanese equities, where markets were closed Monday, fell by 1.6%.  Stocks in the Pacific Rim were mixed, with gains of 2.1% in India, 1.5% in Pakistan, 0.9% in South Korea, 0.5% in Hong Kong and 0.4% in China, but declines of 1.0% in Australia, 1.6% in Japan, 0.9% in Sri Lanka, 0.2% in Malaysia, and 0.1% in Indonesia.

Currencies are mostly marking time, with the dollar unchanged overnight against the euro, Swissie, sterling, yen and yuan.  The dollar fell 0.6% against Australia’s currency but firmed 0.1% against the loonie and kiwi.

Oil and gold prices advanced 1.3% and 0.9% to $86.82 per barrel and $1794.80 per ounce.

Ten-year German bund and British gilt yields firmed one basis point, while there Japanese counterpart dipped by one basis point.

Minutes from the Reserve Bank of Australia’s interest rate policy meeting of September 6 accentuated the virtues standing pat amid softer near-term growth prospects, slower growth in employment, but elevated commodity prices and a decent medium-term growth outlook thanks to persistent emerging market demand for Aussie raw materials.  Unlike the meeting a month earlier, officials did not consider raising the 4.75% Official Cash Rate.

The central bank in Nigeria lifted its key interest rates by 50 basis points.  The new main rate of 9.25% is flanked by a 7.25% borrowing rate and an 11.25% lending rate.

Turkey’s central bank left all policy settings unchanged this month but warned that further ease is possible if global difficulties intensify.

An interest rate decision is also due today in Hungary.  The central bank is not expected to change key rates there.

German producer prices slipped 0.3% in August and to a year-on-year rise of 5.5% from 5.8% in the year to July.  Energy and all other producer prices posted respective on-year advances of 10.7% and 3.3%.

Swedish GDP growth in the second quarter of 2011 was revised downward to gains of 0.9% from 1Q and 4.9% from 2Q10.

The Swiss government agency SECO revised projected Swiss GDP growth to 1.9% in 2011 from 2.1% and to 0.9% in 2012 from 1.5%.  The downgrades reflect the likely impact of an overvalued franc.  The Swiss trade surplus narrowed CHF 2 billion or 71% in August to CHF 0.8 billion when both exports and imports fell.

Japan’s indices of leading, coincident and lagging indicators were each revised downward for July.  The revised leader reading of 104.6 was still above June’s 102.6 score, while the coincident (107.1) and lagging (88.6) scores were below their June levels.  Japanese department store sales in August were 1.7% lower than a year earlier.  The on-year drop for Tokyo stores was 2.9%.

Dutch consumer confidence fell to minus 30 in September, nine points lower than in August.  A smaller deterioration had been anticipated.  Belgian consumer sentiment will be reported later today.

Italian industrial orders posted gains of 1.8% on month and 6.5% on year in July.

Hong Kong unemployment eased 0.2 percentage points to 3.2% in June-August.  Finland’s jobless rate in August of 6.6% was 0.3 percentage points less than in July.  South Africa’s index of leading economic indicators weakened 1.2 points to 134.3 in July.

The FOMC begins a two-day meeting today.  Analysts differ on whether Operation Twist will be announced tomorrow, not to mention whether such or any other initiative would be effective at this point.  The announcement time is set for 19:15 GMT Wednesday.

Scheduled U.S. data today include housing starts, building permits, and weekly chain store sales.  Canada will be reporting wholesale sales and the index of leading economic indicators.  German Chancellor Merkel and Bank of Canada Governor Carney each have public speaking engagements.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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