Saturday, 6 August 2011

S&P cuts US credit rating

This was not totally unexpected. From Reuters:

The United States lost its top-notch AAA credit rating from Standard & Poor's on Friday in an unprecedented reversal of fortune for the world's largest economy.

S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about the government's budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.

Earlier on Friday, US stock markets managed to end little changed after a better-than-expected employment report. Bloomberg reports:

American employers added more jobs than forecast in July and wages climbed, easing concern the world’s largest economy is grinding to a halt.

Payrolls rose by 117,000 workers after a 46,000 increase in June that was larger than earlier estimated, the Labor Department said today in Washington. The median estimate in a Bloomberg News survey called for a gain of 85,000. The jobless rate dropped to 9.1 percent as discouraged workers left the labor force. Average hourly earnings climbed 0.4 percent...

Treasuries fell, pushing yields up from the lowest this year. Yields on 10-year notes rose 17 basis points, or 0.17 percentage point, to 2.57 percent at 4:04 p.m. in New York. The Standard & Poor’s 500 Index fell to 1,199.38 at the close, down less than 0.1 percent from yesterday and extending the worst slump since 2009 as technology shares declined.

The day had kicked off with Japan providing more signs that its recovery is continuing. From Reuters:

An index gauging the outlook for Japan's economy rose in June at a record pace from May in a sign that the recovery from the March earthquake is broadening, although the government warned of risks to the outlook such as slowing global growth.

The Bank of Japan raised its assessment of the economy in its monthly report for August but also warned of potential damage from recent yen rises and heightening uncertainty over the global economy...

Japan's index of leading indicators, a gauge of the economy a few months ahead that is compiled from data such as the number of job offers and consumer sentiment, rose 3.8 points from May, the biggest increase on record, the government said on Friday...

The index of coincident indicators, comprising data measuring the current state of the economy, rose a preliminary 2.5 points. The government revised up its assessment of the index, saying that it suggested an improvement in the economy.

Bloomberg reports, however, that Italy and Spain saw sluggish economic growth in the second quarter.

Italian and Spanish economic growth remained sluggish with weak domestic demand complicating efforts to convince investors the countries can expand enough to reduce debt and avoid becoming victims of Europe’s sovereign crisis.

Gross domestic product in Italy rose 0.3 percent in the second quarter from the previous three months, when it grew 0.1 percent, Rome-based national statistics institute Istat said today. Spanish GDP expanded 0.2 percent from the January-March period, when it increased 0.3 percent, the Bank of Spain estimated today. Industrial output fell in June in both countries...

Even Germany is not immune from negative data. Again from Bloomberg:

German industrial production unexpectedly decreased in June as construction activity waned and investment goods output dropped.

Production declined 1.1 percent from May, when it rose a revised 0.9 percent, the Economy Ministry in Berlin said today. Economists had forecast a gain of 0.1 percent, the median of 26 estimates in a Bloomberg News survey showed. In the year, output rose 6.7 percent when adjusted for working days...

Factory orders unexpectedly rose for a third month in June, boosted by investment goods such as machinery, the ministry said yesterday...

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