Quote of the Day:
We can and want to help only if there is a quid pro quo on the Greek side
Philipp Roesler – Germany Economy Minister
Macro Overview
Moody Moody’s
- Too much of anything is bad for you, that’s what my Mom said… even austerity. Today Moody’s mood finally swung on Europe. They downgraded a bunch of Southern European sovereigns and put France and the UK on negative outlook. This seemed to dominate the morning chatter, apparently rating agency deductions are important news. I beg to differ, its importance is questionable… but it certainly isn’t news. Even if S&P and Moody’s downgraded France and the UK this year, they’d be about 2 years too late, in my opinion.
- See comment on S&P downgrade “massacre” last month. I quoted an old piece of mine.
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.
London, 13 February 2012 — As anticipated in November 2011, Moody’s Investors Service has today adjusted the sovereign debt ratings of selected EU countries in order to reflect their susceptibility to the growing financial and macroeconomic risks emanating from the euro area crisis and how these risks exacerbate the affected countries’ own specific challenges.
Moody’s actions can be summarised as follows:
-Austria: outlook on Aaa rating changed to negative
-France: outlook on Aaa rating changed to negative
-Italy: downgraded to A3 from A2, negative outlook
-Malta: downgraded to A3 from A2, negative outlook
-Portugal: downgraded to Ba3 from Ba2, negative outlook
-Slovakia: downgraded to A2 from A1, negative outlook
-Slovenia: downgraded to A2 from A1, negative outlook
-Spain: downgraded to A3 from A1, negative outlook
-United Kingdom: outlook on Aaa rating changed to negative
Please see the individual country specific statements below for more detailed information relating to the rating rationale and the sensitivity analysis for each affected sovereign issuer.
The implications of these actions for directly and indirectly related ratings will be reported through separate press releases.
The main drivers of today’s actions are:
- The uncertainty over (i) the euro area’s prospects for institutional reform of its fiscal and economic framework and (ii) the resources that will be made available to deal with the crisis.
-Europe’s increasingly weak macroeconomic prospects, which threaten the implementation of domestic austerity programmes and the structural reforms that are needed to promote competitiveness.
- The impact that Moody’s believes these factors will continue to have on market confidence, which is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.
To a varying degree, these factors are constraining the creditworthiness of all European sovereigns and exacerbating the susceptibility of a number of sovereigns to particular financial and macroeconomic exposures.
Moody’s has reflected these constraints and exposures in its decision to downgrade the government bond ratings of Italy, Malta, Portugal, Slovakia, Slovenia and Spain as listed above. The outlook on the ratings of these countries remains negative given the continuing uncertainty over financing conditions over the next few quarters and its corresponding impact on creditworthiness.
In addition, these constraints have also prompted Moody’s to change to negative the outlooks on the Aaa ratings of Austria, France and the United Kingdom. The negative outlooks reflect the presence of a number of specific credit pressures that would exacerbate the susceptibility of these sovereigns’ balance sheets, and of their ongoing austerity programmes, to any further deterioration in European economic conditions and financial landscape.
Santorum Rising?
- What’s this I see, Santorum takes the lead in the GOP race, CBS reports. It’s a strange race, isn’t it? Romney is clearly the leading candidate but he’s like what a Brit might call a “Marmite Candidate”… you either love him, or you hate him and it seems half the Republicans cannot stand him. That’s why the challengers seem to be continually revolving.
- It was also interesting to see Ron Paul ranking ahead of Gingrich at 12 percent (I was honestly expecting him to be in the single-digits). He’ll never get to be a challenger of course, but he may get to the point where he has significant influence. For what it’s worth (and it isn’t worth much, I admit), I still think Romney wins and I also think he’s the Republican most likely to beat Obama, given that he holds a greater pull in the middle-ground among swing-voters and independents.
Big Day For Macro Data Tomorrow
- Big day for macro data tomorrow – see the macro alerts below. The largest European economies all set to report GDP growth. The numbers are all expected to be below zero … the question, just how far below zero will they be? It could all go swimmingly, but I’d be surprised if the equity markets do not break out of the range they’ve been in for this week and last.
- It’ll set the tone for the rest of the month and don’t forget the discussions taking place between EU finance ministers on the next Greek bailout package. All this ahead of Germany’s finance minister, Schauble saying that he feels the Europe is “better prepared” for a Greek default – is he trying to manage expectations? A Bloomberg article today quotes someone succinctly describing Greece’s predicament as an “overdose of austerity”, will EU finance ministers agree on this? Watch the news and data out of Europe tomorrow.
Market Overview
Yoyo Day
- The day was going well until those GDP numbers came out in Greece (ouch) with some interesting comments in the FT from the Chairman of Bosch – the largest car parts supplier in the World:
Meanwhile, in a fresh sign of the unease surrounding the future of Greece among corporate bosses in Europe, Franz Fehrenbach, the chief executive of Bosch, the world’s biggest car parts supplier, on Tuesday urged Greece to leave the European Union and single currency.
Mr Fehrenbach described Greece as an “unacceptable burden” on the EU and eurozone. He told Manager Magazin in an interview that if the country did not leave voluntarily, the EU should change its laws so Greece could be made to do so.
- Then the Advance Retail Sales numbers in the US were poor, but I hardly think this was a major data point. Still, the markets did not like something… and Mr Market is always right! Something tells me this was more to do with the clanger in Greece than the hiccup in America.
- Chart of the Day is Greek GDP growth. I emphasize growth because this is, of course, the second derivative of the size of the economy. Even if the line on this chart ceases to go down, Greece is still is a terrible “downward spiral” as the IMF and the Telegraph communicated today. Scroll through the charts in the Telegraph article I linked – pictures say a thousand words, but they ain’t pretty.
Chart of the Day
Greece GDP Growth (Source: Bloomberg)
Events
Macro Events:
Update:
- Greece GDP Growth -7% YoY – worse than the last reading… by quite some margin.
- Portugal GDP Growth -2.7% YoY – marginally better than expected.
- UK inflation is finally negative – gives the BoE a little breathing room for QE.
Alerts:
- EU Finance Minister Meet In Brussels to discuss the new Greek Bailout Package.
- Brazil Inflation
- France GDP
- Germany GDP
- Italy GDP
- Netherlands GDP
Corporate Events:
Results:
- BNP [BNP FP], Danone [BN FP], Deere [DE],DevonEnergy [DVN], ENI [ENI IM],
Dividends:
- 3M [MMM], Chevron [CVX], Shell [RDSA LN], Unilever [ULVR], VISA [V]
Reading, Links:
Nothing Significant.
