15th January 2012: The Ratings Bloodbath In Europe

 

Does Merkozy Exist?

Quote of the Day:

The policy response at the European level has not kept up with the rising challenges in the euro zone

Moritz Kraemer – S&P’s managing director of European sovereign ratings

Macro Overview

Euro-Ratings Slaughtered By S&P

• Nothing surprises us these days. We have headline fatigue… 9 sovereign states in Europe were downgraded by the World’s leading agency and I was left wondering if I had anything more substantial to write about this weekend!?
• Without question, the big talking point over the weekend was the mass European downgrade by S&P. All in all nine states were downgraded, Austria lost its AAA status and Italy, Spain, Portugal and Cyprus were dropped by two notches, not one. But the biggest talking point was France which not only lost its AAA status but was further put on negative watch.
• Now there is talk of Moody’s stepping in to downgrade Europe too – with the UK on this hit-list. But readers of mine will not be alarmed by any of this as far back as August 2011, in the aftermath of the US rating downgrade I wrote:

You know my opinion; one must earn an AAA rating – it is not bestowed on any profligate nation with the biggest printing press. In any case, AA is not the end of the World – it hasn’t affected Japan much. It just means your house is not as perfect as it could be – I don’t know any American that would not admit that. But, alas, the US should have been downgraded much earlier. S&P’s main crime was not that they screwed up the maths, it was that they were too late in finally downgrading nations with explosive debt trajectories, which could potentially be financially gridlocked in political disharmony. Farcically, Moody’s and Fitch, on the other hand, have little to gain, politically, by doing anything other than keeping mum and towing the party (i.e. whichever party is in the White House!) line. And, yes, France and the UK should probably lose their AAA status too – or at least be on negative watch. In the case of the UK, it should probably have been downgraded years ago.

• It’s as ugly as you make out, I suppose. The French government nonchalantly shrugged it off initially but Sarkozy knows he’s treading a fine line, later promising reform. His silence was noticeable as we felt the first of Merkel’s solitary muscle-flexes on the Union, her tone sounded consoling and conciliatory but one couldn’t help thinking basically reminding everyone of that fact that Germany was the top dog of this mangy bunch. It’ll be interesting to see whether the Merkozy  relationship loses its “coziness” over the next few months.
• Many commentators (of which I am one) think that the downgrade was already priced into the market. But I’m not sure a negative outlook was – and, certainly, a double-notch downgrade is not! Events inEuropeare fast becoming a credibility stand-off between Ratings Agencies and Governments – you can’t take your eye off this for a minute dear reader.

Market Overview

Good Bond Auctions Buoy The Market

• It was a really interesting week last week. The Sovereign Bond Auctions inEuropewent remarkably well. It was like December never happened. I’m not sure which is the anomaly now, was December just a blip … or is January? I expect we’ll find out soon enough.
• Meanwhile my Chart of the Day (as it will be at the beginning of every week for a while) is the Sovereign Debt Calendar Chart.

Chart of the Day

TIPSTER's Auction Calendar - Weekly (click to enlarge)

TIPSTER's Auction Calendar - Daily (click to enlarge)

Events

Macro Events:

Update:

• Ma Ying-jeou wins the Taiwanese Election. My political theme for 2012 begins here!
• Japan Machine Orders.

Alerts:

• Nothing Significant.

 

Corporate Events:

Results:

• Nothing Significant

Dividends:

• Nothing Significant

Reading, Links:

Nothing Significant