Thursday, 29 April 2010

S&P cuts Spain's credit rating

Europe's sovereign debt problem continues to spread. From Bloomberg on Wednesday:

Spain had its credit rating cut one step by Standard & Poor’s to AA, putting it on a par with Slovenia, as contagion from Greece’s debt crisis spreads through the euro region.

S&P said in a statement today that its outlook on Spain is negative, indicating possible further downgrade if the “budgetary position underperforms to a greater extent than we currently anticipate.” Spain, which has the euro-region’s third- largest deficit after Ireland and Greece, was last cut by S&P in January 2009.

The risk premium investors demand to hold Spanish bonds surged to the highest in more than a year today and the price of insuring Spanish bonds against default reached a record as concerns about Greece’s ability to pay its debt spilled over into Spanish and Portuguese markets.

However, investors took comfort from the continued benign Fed stance on monetary policy. Again from Bloomberg:

Federal Reserve officials restated their intention to keep the benchmark interest rate near zero for an “extended period” and saw signs of life in the job market.

“The labor market is beginning to improve,” the Federal Open Market Committee said in a statement today in Washington, after last month saying it was “stabilizing.” Officials also said growth in household spending has “picked up recently.”

MarketWatch reports the market reaction to the events of the day.

U.S. stocks on Wednesday made a moderate rebound after stronger earnings and a Federal Reserve commitment to keep rates low offset investor unease over Southern Europe's sovereign debt problems.

The Dow Jones Industrial Average ended up 53.28 points, or 0.5%, to 11,045.27, led by a 2.5% rise in J.P. Morgan Chase Co. shares and a 1.8% gain in Bank of America Corp...

Gold futures extended their winning streak to a fourth-straight day, adding $9.60, or 0.8%, to settle at $1,171.80 an ounce on Comex. See Metals Stocks on gold prices.

Oil futures ended 78 cents higher, or 1%, at $83.22 a barrel. See Futures Movers on oil prices.

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