Exto Capital Weekly Review: European Peripheral Concerns are Back
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Sep 1, 2017 at 3:07 pm #771
The correction in the US equity markets picked up some steam this week as investors used some fundamental data to take profit on areas of the market that have run up during the first two month of 2011. Thursday’s trading did the most damage to the markets testing support levels that are key to the current bull trend. A combination of a worse than expected Chinese Trade Balance, along with a downgrade by Moody’s of Spain’s debt, was the impetuous traders used to sell the markets. Commodities were also under pressure, with Oil, Gold and grains such as Wheat and Corn all down. during the week.
The dollar began to rebound this week as concerns about the peripheral countries in Euro, outweighed the potential for an increase in interest rates by the ECB next month. On Thursday, Moody??????s Investors Service downgraded Spain??????s bond ratings one notch to Aa2. The rating agency said it feared restructuring Spanish banks would cost more than initially thought, which would increase the pressure on the public debt. The downgrade took place hours before the Bank of Spain published each bank’s capital needs. Spanish officials have indicated that it would not exceed ??????20 billion or 2% of GDP. Moody’s says it could really cost up to ??????50 billion.
On Friday, Portugal has announced additional spending cut measures, worth almost 1% of GDP and has brought forward to next year when its budget deficit will return to 3%. Nevertheless, the market has sold off Portuguese bonds. There are some reports suggesting EU pressure may be built on Portugal to accept aid. Portugal, of course, wants to hold out. The government claims that the average yield on its debt stock is 3.6%-3.7%. It has become quite obvious that the assistance packages to Greece and Ireland have not stabilized their interest rates and the terms of the assistance is not particularly attractive to Portugal. Germany seems more sympathetic about extending the duration of Greek (and by implications, it would seem, Ireland). Moreover, the new spending cuts today also may be understood as a precondition for assistance.00
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