Moody’s Places U.S. Sovereign Debt on Review

July 14, 2011

Wednesday’s market respite was short-lived as the Moody’s rating agency announced that America’s AAA sovereign debt designation would be reviewed for a possible downgrade. 

  • The dollar continues to trade below JPY 80.0, prompting Japanese verbal intervention.  There was even some market speculation that officials might have done some real intervention overnight to soften the yen.
  • Gold spiked to a record high and is up 0.5% on net at $1593.70 per ounce.
  • Other precious metals have climbed even more sharply such as silver and platinum.
  • A rise is indicated in ten-year Treasury yields, whereas sovereign debt yields fell by five, four and three basis points in Germany, the U.K., and Japan.
  • A key advisor to China’s central bank is urging more aggressive diversification away from the dollar.
  • Fitch downgraded Greek debt to CCC.
  • Italy’s government debt auctions fetched significantly higher yields than the last time.  Italy’s parliament is expected to pass austerity measures tomorrow.
  • Share prices are down 1.0% in France, 0.9% in Britain and 0.7% in Germany.  Equities dropped 0.5% in Australia and 0.3% in Japan.
  • Oil prices are steady but near $100 at $98.01 per barrel.
  • The euro firmed another 0.1% to $1.4165.  The greenback lost 0.7% against the kiwi, 0.3% versus the Swiss franc and 0.1% against the yuan.  But it’s unchanged against sterling and the yen and 0.1% higher against the Canadian and Australian dollars.

Fed Chairman Bernanke reprises his Humphrey Hawkins testimony at 14:00 GMT today, this time before the senate.

Irish banks are expected to have done poorly in European stress test results due tomorrow.

The Bank of Korea’s key interest rate of 3.25% was not raised further this month.  A statement from officials observed signs that the recoveries in advanced economies have faltered temporarily.

Indian WPI inflation accelerated to 9.4% last month from 9.1% in May.

Euroland CPI inflation in June was confirmed at 2.7%, same as in May but 1.2 percentage points above the 1.5% pace over the year to June 2010.  Core inflation firmed to tenth of a percentage point to 1.8%.  Energy prices fell 0.5% but were 10.9% higher than a year earlier. 

Dutch retail sales fell 2.6% in May.  The preliminary 0.8% on-month decline in Hungarian industrial production during May was confirmed. Italian consumer prices firmed 0.1% in June and were 2.7% higher than a year earlier, thus matching Euroland’s pace. Irish CPI inflation was also 2.7% last month.  Spain’s index of leading economic indicators stagnated in May.  Finnish CPI inflation rose to 3.5% in June from 3.3% in May.

Singapore and New Zealand released GDP data.

  • Singapore’s figures were worse than forecast.  After soaring 27% at an annualized rate in 1Q11, real GDP fell 7.8% last quarter and was just 0.5% greater than in the second quarter of 2010.  Factory output was badly affected by the fallout of Japan’s earthquake and plunged 22.5% annualized.
  • New Zealand figures showed better-than-expected resilience in the face of the Christchurch earthquake that struck February 22.  GDP rose 0.8% in the first quarter but was still just 1.4% greater than in 1Q10.  In prior quarters, GDP had risen 0.2% in 2Q10, dipped 0.1% in 3Q10 and recovered 0.5% in 4Q10.

Expected CPI inflation in Australia over the year ahead edged up a tenth to 3.4%.

The on-year advance of Japanese machine tool orders in June was revised to 53.5% from 53.3%.  May’s increase had been 34%.

Scheduled U.S. data releases on this busy day will include retail sales, producer prices, business inventories, and weekly jobless insurance claims.  Moody’s announcement about a review of U.S. debt is sure to come up in Bernanke’s testimony before the senate.  Late today, Chile’s central bank is expected to announce no change in its key interest rate.

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

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