Treasury And Market Responses To S&P Stunner

Tyler Durden's picture

The Treasury's prepared statement is out 25 minutes following the S&P planned downgrade, which only those who don't get inside information were surprised by.

  • US Treasury's Miller says S&P negative outlook underestimates ability of US leaders to come together to deal with US fiscal challenges
  • Both political parties now agree it is time to begin bringing down deficits as a share of GDP.
  • US economy is strengthening as it emerges from recent recession.

And the followign market responses from market participants via Reuters:

 "What the agencies want to see is real steps taken to improve the situation. in the absence of that a downgrade is not far.

"What then Obama administration has done in cutting the 2012 budget recently is to show that he is willing to engage. The ratings agencies have to take that as a positive, but they want to see more.

"Our call is for the 10-year yield to go to 4 percent by the end of the year on inflation and growth alone. That does not even account for issues surrounding the debt. Today may be the first day that the bond market starts to price in these budget issues." JOHN BRADY, SENIOR VICE PRESIDENT, MF GLOBAL, CHICAGO

"It's not an issue that is going to affect us today or tomorrow but the fact of the matter is, is room going to be made or not to get the fiscal house at least in some order during debt ceiling negotiations?

"This is tape bomb. It doesn't come as a complete surprise to the markets however seeing it in black and white print it is going to shake the market up for sure. You see the dollar down a bit, gold getting bid...and a break of 1298 on the S&P could send it to 1285 in the course of the week." HUGH JOHNSON, CHIEF INVESTMENT OFFICER OF HUGH JOHNSON ADVISORS LLC IN ALBANY, NEW YORK

"The simple thing to say is this is a big surprise. We've all known that credit conditions in the U.S. are borderline at best. The numbers compare with some of the more troubled countries in Europe -- if you look at deficit as a percentage of GDP or debt as a percentage of GDP. So we know that they are borderline but we didn't expect S&P would take this action, at least I didn't. It is going to put a lot of pressure on the Obama administration to move faster at reducing the deficits, or cutting spending and possibly increasing taxes. So it will put pressure on the Republicans as well. There will be pressure on Washington. It is not good news and it is not good news because to move towards austerity when the U.S. economy is not on sound footing is not a good idea. This comes incidentally right after the IMF has downgraded its view of the global economy. So it is likely to stir those worries or concerns about global growth. Not good news.

"They have good reason to be skeptical or worried. So this is going to put pressure on policy makers -- democrats and republicans alike -- to get their act together. And I'm not sure the timing of getting their act together is that good. And again, It is that idea of austerity before the economy is on sound footing." DOMINICK CHIRICHELLA, SENIOR PARTNER, ENERGY MANAGEMENT INSTITUTE, NEW YORK;

"We came in today with not a whole not new over the weekend. The geopolitical risk was stable with Nigerian elections coming in O.K. So what we're seeing is a continuation of the downward correction that started last week but paused midweek because of the inventory numbers.

"We will check the $107 a barrel technical support level today and if the momentum continues on the equities side, we will hit $103 a barrel soon." LOU BRIEN, MARKET STRATEGIST, DRW TRADING, CHICAGO

"The rating is the same, but the headline has enough of a shock value. The initial reaction is that this is negative for dollar assets across the board." CHRIS DILLMAN, ANALYST, TRADITION ENERGY, CONNECTICUT