Saturday 14 January 2012

S&P slashes ratings in Europe

Italy managed to sell debt relatively successfully on Friday. The government sold the maximum planned amount of 4.75 billion euros of debt, with the November 2014 bond being sold at an average yield of 4.83 percent, down sharply from a yield of 5.62 percent for similar bonds sold at an auction just two weeks ago.

However, the big news on Friday was the rating downgrades by Standard & Poor's. The ratings agency cut the credit ratings of France, Austria, Malta, Slovakia and Slovenia by one notch each and those of Italy, Spain, Portugal and Cyprus by two notches. The downgrade leaves Italy with a rating of BBB+ while Portugal is pushed down to junk status.

Or maybe the news wasn't so big. Despite becoming aware of the impending downgrades during the trading day, markets were only moderately down on Friday. The S&P 500 fell 0.5 percent while the STOXX Europe 600 fell 0.1 percent.

Still, the rating downgrades were not the only negative piece of news on Friday. Negotiations on a debt swap by Greece's creditors broke up without agreement, raising the risk of a Greek default.

US economic data on Friday were mixed.

The Thomson Reuters/University of Michigan consumer sentiment index reached a preliminary reading of 74 in January. This is up from 69.9 in December and is the highest level since May.

However, the trade deficit widened in November. Exports fell 0.9 percent, the second consecutive drop, while imports rose 1.3 percent.

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