One Minute Macro Update: Downgrade Bonanza

Tyler Durden's picture

Overview: Markets mostly positive this morning ahead of the ADP Employment numbers and despite sovereign ratings downgrades for Greece and Portugal yesterday.

U.S.: Housing figures continue to disappoint as MBA Mortgage Applications today showed a decrease of -7.5% for the week v 2.7% prior. Challenger Job Cut figures for March came in at -38.6% YoY v +20.0% prior. ADP payroll figures estimated at 208K additional jobs will also preview this month’s labor market as the anticipation for Friday builds. This estimate is compared to February’s 217K that exceeded market expectations and put the market into frenzy over the Friday release. All indications point to today’s release showing some traction and we tend to take the over on the 208K consensus. Yesterday’s consumer confidence of 63.4 v 65E disappointed the Street, but as we noted yesterday, this was not a total surprise given recent commodity price spikes and a still downtrodden housing sector. In an interview last night, President Obama showed confidence yesterday in the effectiveness of sanctions and U.N. military action against the nearly defeated Libyan leader Qaddafi. The President also noted that the U.S. may support Libyan rebels through the provision of arms. Luckily the speech did not interfere with “Dancing with the Stars”…

Europe: Yesterday S&P cut Portugal’s sovereign debt rating for the second time this week to BBB- from BBB and Greece’s rating from BB+ to BB-, with Portugal left on negative outlook and Greece left on watch negative. The decision centered on both countries’ unsustainable debt levels and inevitable draw on the EFSF as well as the agency’s rather dim view of the future ESM. We agree with the less-than-rosy-view of what one client has wittingly termed “the new new new new final comprehensive liquidity solution to the solvency problem.” The IMF appeared peeved by the announcements as a report published yesterday highlighted that ratings news adds to the region’s instability. Portugal will also have to revise their deficit figures to Eurostat after an accounting irregularity. With bank stress test coming up in April and the bad news continuing, we feel the agencies will have no choice but to continue their downgrade trend and that spreads remain too tight relative to risks. Fitch noted this morning that the summit results are unlikely to ease new term financing conditions for the periphery. Euro Zone consumer confidence in March continued to be hit by the region’s sovereign debt troubles and held steady at -10.6 v -10.6E. Ireland’s unemployment rate reached 14.7% in March v last month’s 14.7% revised up from 13.5%. German inflation remained at its two-year high in March, with preliminary HICP at 0.5% MoM v 0.6% prior and 2.2% YoY v 2.2% prior. Spanish inflation also remained elevated high in March, with HICP increasing 3.3% YoY v 2.4%E. These levels provide further support for Trichet’s proposed ECB rate hike. Retail sales in Spain fell again to -4.8% YoY v -4.7% prior on a real basis. The Bank of Spain also revised up its 2011 jobless rate to 20.7% for 2011 and 20.4% in 2012. Portuguese retail sales dropped 4.6% YoY v -7.1% prior revised down from -5.3%. Portuguese industrial production figures were more optimistic at +0.9% YoY v -0.7% prior and +1.5% MoM v -3.7% prior, although levels remain low.

Asia: Asian stocks on the rise after Japanese manufacturers resumed production for the first time since the earthquake earlier this month. The Chinese press is reporting that the PBoC may raise RRR 6 more times this year to add onto the 3 adjustments made already in 2011. The Chinese leading index pushed up slightly to 101.05 v 101.04 prior. New Zealand building permits fell 9.7% MoM v -1.0%E and erased last month’s +9.1%. South Korean real GDP in 4Q10 grew 0.5% MoM v 0.5% prior and 4.7% YoY v 4.8% prior. Preliminary figures for Japanese industrial production showed +0.4% MoM v -0.1%E, though these figures are pre-earthquake. Radiation concerns continue to grow in Japan as Iodine levels in seawater close to the nuclear power plant show abnormally high iodine levels. Japanese farmland will tested for radiation and will be complete in the next few weeks.

From Brian Yelvington of Knight Capital

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DavidC's picture

Well, we've got end-of-month and end-of-quarter so I reckon they're going to do everything they can to keep the markets up, at least for today and tomorrow. Into April, who can tell?

Cynic? Moi?


oh_bama's picture


smlbizman's picture

i need silence...steve liesman and larry {mack and} myer for hire are on....shhhh...

cabernet's picture

We worry so much. The worse the news gets, the more the central banks around the world monetize. The more they monetize, the higher paper (read: stock) and commodity prices go. The higher stock prices go, the happier investors get not caring about how they give it back at the grocery store, gas station and to the tax authorities. Strange world we live in these days. Nuclear disaster in Japan, chaos in the middle east, approaching bankruptcy by western european governments, along with state, county and city governments in the US. Lets not forget to mention austerity for the common man who are rioting (London most recently). But never fear, higher share prices are on the way. Ah, the power of the printing press. www.TheAngryGrapes.Com

sbenard's picture

We're too d-d-d-drunk on m-m-m-monetary h-h-h-h-heroin to c-c-c-care!


News, information, and analysis of any type are now irrelevant! We have printed prosperity now!

writingsonthewall's picture

We must be getting close - tell me we're getting close. This is a classic sign of a market top - buying no matter how bad the news is?

...until the news is really bad.

I'm thinking an Irish haircut - or total default - followed by the European (British mainly) banks getting hammered which returns all the fears about credit again - affecting all markets.

Japan and Portugal in the mix are also players - one because they are the 3rd biggest economy in the world simply 'out of play' and the other because the EU is proposing to hike rates in April - possibly the same month it's third member requires a bailout.

An announcment by the Irish is big enough a shock to colapse the house of cards. I don't think the other factors alone are enough to do it.

With Ireland it's not the amount, it more because it sets a precident (well resets a forgotten one) i.e. Other countries in the firing line will consider the same course of action - Spain perhaps?


Robert Peston has touched on this today - finally the MSM starts to notice things when it's all too late.

This problem in Ireland has been going on for 3 years now - it's obvious the end result will be default - anyone who thinks otherwise is delluding themselves!

zaknick's picture

So why would the IMF be peeved? These are the fault lines that matter yet they're glossed over. Wonder if that new Bretton Woods fiat party Soros is throwing will be a dud.

snowball777's picture

Entire world moved to γγ- suicide watch negative.