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So Much For EURUSD Breaking 1.3800: S&P Cuts Spain To AA- From AA
UPDATE: EURUSD loses 1.3750
Chart: Bloomberg
From S&P:
Overview
- Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain's growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain's main trading partners.
- The financial profile of the Spanish banking system will, in our opinion, weaken further, with the stock of problematic assets rising further, as highlighted by the recent revision in our Banking Industry Country Risk Assessment on Spain to Group 4 from Group 3.
- As a consequence, we are lowering our long-term sovereign credit ratings on Spain to 'AA-' from 'AA'.
- The outlook on the long-term rating is negative.
Rating Action
On Oct. 13, 2011, Standard & Poor's Ratings Services lowered the long-term rating on the Kingdom of Spain from 'AA' to 'AA-', while affirming the short-term ratings at 'A-1+'. The outlook is negative. The transfer and convertibility assessment remains 'AAA', as it does for all members of the eurozone.
Rationale
The lowering of Spain's long-term rating reflects our view of:
- Spain's uncertain growth prospects in light of the private sector's need to access fresh external financing to roll over high levels of external debt amid rising funding costs and a challenging external environment;
- The likelihood of a continuing deterioration in financial system asset quality as reflected in the recent revision of our Banking Industry Credit Risk Assessment score for Spain to group 4 from group 3 (see "Spain Banking Industry Country Risk Assessment Revised To Group 4 From Group 3 On Heightened Economic Risk", published Oct. 11, 2011);
- The incomplete state of labor market reform, which we believe contributes to structurally high unemployment and which will likely remain a drag on economic recovery.
Under our recently updated sovereign ratings criteria, the "economic" score was the primary contributor to the lowering of Spain's long-term rating. The scores relating to other elements of our methodology--political, external, fiscal, and monetary--did not directly contribute.
While in our view the factors impeding a potential recovery of domestic demand are not unique to Spain, they impact Spain with particular force given its high level of private sector leverage, much of which is funded externally. This is reflected in Spain's negative net international investment position, estimated at 94% of GDP in Q2 2011. A key component of this is short-term external debt, which, at around 50% of GDP in Q2 2011, we view as high. Spanish monetary and financial sector institutions accounted for slightly over one-half of total external debt at the end of Q2 2011, 57% of which is short-term debt. In our opinion, this leaves the economy vulnerable to sudden shifts in external financing conditions.
External leverage at such levels increases uncertainty about the trajectory of the economy, as much depends upon the access of these Spanish borrowers to international markets, as well as the state of external demand. We believe that these factors, in turn, will be influenced by the direction of policy decisions made by eurozone institutions, including the ECB, and Spain's eurozone partners. In 2011, we expect the Spanish economy to grow around 0.8% in real terms, while for 2012, we expect real GDP growth to be around 1%, weaker than the 1.5% we estimated in our February 2011 research update (see "The Specter Of A Double Dip In Europe Looms Larger", published Oct. 4, 2011).
These forecasts are, of course, estimates and subject to various factors, including:
- The possibility that the private sector's protracted deleveraging process may accelerate due to a further tightening of credit conditions. This could hinder any recovery in private investment, even though real fixed investment has already declined by nearly 30% cumulatively between 2008 and end 2010.
- Harsher repricing in the real estate market particularly for new housing, to which the banking sector remains particularly exposed, which may result in a higher-than-previously-expected accumulation of problematic assets in the financial system. This, in turn, could slow the flow of financial resources to more productive sectors of the economy and weigh on the recovery (see "Spain Banking Industry Country Risk Assessment Revised To Group 4 From Group 3 On Heightened Economic Risk", published Oct. 11, 2011).
- High unemployment, expected at around 20%-21% in 2011-12, which will remain a drag on private consumption. Although the government has implemented some labor market reform measures, their impact on reducing labor market rigidities remains to be seen.
- Economic growth in Spain's main trading partners could slow further or contract, which may result in more subdued external demand for Spanish exports (see "The Specter Of A Double Dip In Europe Looms Larger", published Oct. 4, 2011). Since 2009, exports have underpinned the economy's modest growth and contributed to a sharp reduction in the current account deficit, which we expect to decline to 3.8% of GDP in 2011 from 10% of GDP in 2007.
We have adopted a revised base-case macroeconomic scenario, which we view as consistent with the downgrade and the negative outlook. Compared with the February 2011 base-case (see "Kingdom of Spain 'AA/A-1+' Ratings Affirmed On Budgetary Consolidation And Structural Reforms; Outlook Negative " published Feb. 1, 2011), we expect GDP growth in 2011-13 will be weaker, with the stock of domestic credit to the private sector, estimated at around 165% of GDP in 2011, to decline somewhat faster. At the same time, we expect the strength of net exports to cushion the impact of a further tightening of fiscal policy.
We have also adopted a downside scenario, consistent with another possible downgrade. The downside scenario assumes a return to recession next year, partly as a result of weaker external and domestic demand, with real GDP declining by 0.5% in real terms, followed by a weak recovery thereafter. Under this downside scenario, the current account deficit would decline, but the general government deficit would remain above 5.5% of GDP, at odds with the government's fiscal consolidation targets.
We have also adopted an upside scenario, which, if it occurred, we believe would be consistent with a change in the rating outlook to stable. The upside scenario assumes stronger growth next year, on the back of a pick-up in domestic demand, and supported by an easing in financial conditions and continued strength in exports. For details of all the scenarios, see our analysis on Spain to be published soon.
Under all three scenarios we expect that Spain's high private sector debt, and in particular the high stock of external debt--largely euro-denominated--will remain the key rating constraint for the foreseeable future. Narrow net external debt would range between 290% and 325% of current account receipts by 2014. Under our sovereign criteria these values would continue to imply an initial external score at the lowest possible level for a country with an actively traded currency, like Spain.
Our macroeconomic analysis also indicates what we consider to be one of Spain's main credit strengths: Even taking into account additional
government-financed bank recapitalizations, we do not expect net general government debt to rise much above 70% of GDP, which compares favorably to Spain's peers.
In our view, the introduction of a ceiling for structural deficit and debt in the Spanish constitution underscores the authorities' broad commitment to budgetary discipline. However, in the near term (and under our base-case scenario), we believe the government could miss its fiscal target due to budgetary slippages at the local and regional government levels and in social security, despite a better-than-expected central government deficit. Nevertheless, we expect the general government deficit in 2011 to be around 6.2% of GDP, which is broadly in line with the government target of 6% of GDP.
However, we believe that additional measures will be required to meet the 2012 target of 4.4% of GDP (our forecast 5.0% of GDP in 2012). As a result, we project net government debt will increase to around 57% of GDP in 2011 and 60.2% in 2012, from an estimated 50.1% in 2010, despite higher borrowing costs.
Another sovereign strength is the Spanish government's liquid assets position, currently around 10% of GDP. While further growth in borrowing costs is likely to result in rising interest outlays, the increase in the average interest rate on Spain's outstanding government debt has not in our view been a material additional burden on the budget (3.9% in August 2011, versus 3.7% end-2010, 3.5% end-2009 and 4.3% end-2008). Our current government debt projection does not include the anticipated income from the delayed partial privatizations of the airport operator AENA, or the National Lottery.
As noted above, the application of the other elements of our recently updated sovereign ratings criteria-- political, fiscal, external and monetary--did not directly contribute to the downgrade of the rating. We continue to view Spain as a wealthy sovereign with a high level of political predictability as highlighted by the government's commitment to regular implementation of policy measures, despite weaker economic growth prospects and persistent external imbalances.
Rating actions affecting issuer and issue ratings linked to the Kingdom of Spain's long-term rating will be covered in a separate press release.
Outlook
The negative outlook reflects our view of the risks to Spain's economic growth linked to private sector deleveraging, external financing pressures, and their impact on budgetary consolidation.
We could lower the ratings again if, consistent with our downside scenario, the economy contracts in 2012, Spain's fiscal position significantly deviates from the government's budgetary targets, or additional labor market and other growth-enhancing reforms are delayed.
Conversely, we could revise the outlook to stable if, consistent with our upside scenario, the government meets its budgetary targets in 2011 and 2012, risks to external financing conditions subside, and Spain's economic growth prospects prove to be more buoyant than we currently assume.
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Bullish. Auctions should go off with a massive bid/cover.
Fuck it. I'm still going long on Spanish Women.
Don't go too long. They blow up quick after age 25.
So you're saying he's going to roll his position into pork bellies?
lol
Cantango??
likely Hog Futures.
I haven't dated a lady over 25 in a decade.
meh. I am a screenwriter, i'm paid to be a Manchild.
You don't know what you're missing. Nothing compares to being mauled by a wild Cougar and they don't tell or swell.
.
so true...
Oui,oui...
And do stuff not seen, even on depraved Porn Channels.
OH Momma those girls know a frightening array of things.
They know its a candle burning at both ends
mmm I'm 25 now.. better enjoy the women while I still can..
fairwell and aidu to you spanish ladies....
farewell and adieu you ladies of spain...for we've received orders for to sail back to Boston...and so never more shall we see you again. MUAHH AH HA HAAH HAHA
I'm glad you capitalized that word. They do have a Queen you know. And a King, too. And they are MOST displeased.
Markets will go up 5% tomorrow!
WTF there are no European rating agencies? This is a one-sided war.
Maybe 'mericans have a monopoly on creative accounting.
Where is Deven Sharma these days?
Fitch is French:
Fitch Ratings and Fitch Solutions, as well as Algorithmics, a leader in enterprise risk management solutions, are part of the Fitch Group. The Fitch Group is a majority-owned subsidiary of Fimalac, S.A., headquartered in Paris, France.
Don't be too harsh on him. You read this everywhere at least in the German media and I guess it won't be that different elsewhere:
"Die US-Ratingagentur Fitch" - Der Spiegel.de (today)
"Die US-Ratingagentur Fitch hat die Landesbank Berlin und die Berlin-Hannoversche Hypothekenbank herabgestuft" (Welt.de)
The good ol US of A lost its triple rating, exactly what has been the results? I am confused, does this matter anymore?
the result is that rating agencies do not mean anything anymore because there are no more rules to play by and everybody on his own to check for credibility of his counterparties
You said it. Pretty hilarious that all these downgrades are happening 3 years after "the great financial crisis" of 2007-2008.
I laugh every time I see a downgrade. Mainly because of my previous point, but more so because the letters they use are hilarious. AA-? What the ... Do we really get a chance to hit D- or like.. F for crying out loud?
Pretty sure once we hit C's heads will roll and gold will be well above 2,000 USD. At that point in time it won't really matter anymore who downgrades what nor what convoluted set of alphabet characters they assign to any entity.
They're all "JUNK" already regardless of the ratings.
Does it Matter ... Fuck yes
Have you priced a new car
Sticker Fuckin shocking
Seriously, what is the implication of this downgrade beyond psychological? EU, ECB, IMF all stand behind PIIGS debt so in essence they are the co-signer on Spains debt. Good as gold no matter what rating agencies say?
Any banks need to mark it to market and raise capital? Any Pension or Insurance funds need to ditch it now? Seems nope and nope.
Government sponsored accounting fraud.
Nothing matters until Germany gets downgraded, should happen sometime next spring.
Not much Ham, but some pension funds, bond funds, etc. are prohibited by law or charter from holding paper below a certain grade. Can add a big dump of bonds at the worst possible time.
If Spanish or other PIIGS debt is no longer riskless, would seem to mean ECB funds and coming ESFS will get spent that much faster maintaining Spanish / Italian interest rates in secondary while buying all primary for Port, Ire, Greece? That 440b euros could go pretty fast at this rate?
I would think so. Like Dear Old Dad, liked to say, like shit through a tin horn;)
I believe it's thin shit through a tin horn
Shin tit through a hin torn?
credit crunch time..
No one cares, it's earnings season.
But Jamie Dimon said Spain didn't have a solvency problem, it was simply a short-term liquidity issue?
It's beginning to look like a long hard slog ahead of us. Dethroning the elite is going to be pulling teeth.
I'm thinking of starting a pitchfork manufacturing business ... I believe there's a growing market for them.
Actually, I hear the TSA has a special wand for the ass that lights up to look for the gold & silver they are gonna try to leave the good ole' USA with.
Isn't that $1.38 USD/EUR [not EUR/USD] ?
NO
in the long run, we can see a broad commitment to fiscal discipline, + we're all fuking dead!
so in the short run, continue to raise hell, zeroHead BiCheZ!
Still AA? Generous.
There goes another S&P CEO
Why is Spain not BB- ?
they have carlos santander?
or DD with all the topless beaches...
A lot of banks are running long positions on all risk crosses and the EUR. The are starting to sweat
I hope they are slaughtered.
And beacuse they are greedy they failed to freak out on the Bund/Italian yield blowup, also German equities going south like the begining of the Aug sell off.
Absolutely ridiculous. No consideration of more accomodative policy a la Draghi. No mention of a pretty solid floor on Spanish real estate by English and German buyers waiting for a deal. No mention of the possible constitutional budget cap.
I get more reading Ambrose Evans-Pritchard than rating agencies.
You have a strange take on Ambrose--He's incredibly (refreshingly) skeptical and I'm fairly certain he'd say your litany of "positives" are about as edifying as a popcorn fart given the scale of Spain's GDP growth/debt problem...
France being AAA and Spain downgraded is a joke. S&P is so far behind that curve that there is no point in discussion.
You downgrade us? We downgrade you!
back to 1.32 bitchez
h-ole...A!
Well it is obvious SP did not get Lloyd's memo. That will not go over well.
FrAAAnce
FrAAnce
FrAnce
In due time.....
France should be downgraded.
Fr(junk)nce?
You know guys, none of the truth matters. It makes no difference what the news is, the markets will not listen. Soon to be 16 T in debt, so what. We are paying the interest on time all the time. The country is being run, OK by inmates, but it is functioning. Most investors want to watch survivor, not think about Them surviving. Most of us here have a brain and we can see what is coming towards us at a fast rate. But while it matters to all of us and Will matter to the markets at some point, it Just Freaking does not matter...Until It Does.
Companies will probably report good earnings as most are lean, they fire people instead of hiring. They have cut costs dramatically and are efficient. And for now, that is all the sheeples care about. Their 201 K.
Frustrating for sure here, but that is the way it is. If there was a nuclear explosion somewhere on the planet the market would ramp the second day as it would be good for construction companies and home builders. This is all so surreal. Just gotta live with it.
It doesn't matter because the entire system sits on a foundation of fraud and corruption. The fraud and corruption run so deep that if it were excised, the system would effectively cease to exist in its current form. It is useless to try to rationalize the market because it isn't behaving according to rationality. It, instead, is behaving according to a very directed campaign of fraud for profit. Eventually, the fraud-scheme will collapse of its own accord.
still short dollar...that usdx run to 80 was bs
Didn't take long. Just 3 hours later and Euro/USD is back over 1.3750. We don't need no stinking ratings
But Google beat net revenue expectation by 2.7%....so who cares about anything else!! BUY EVERY STOCK ALL OVER THE WORLD!!!!!!
Oddly enough both Australia and New Zealand opened down on Friday. Normally they would ramp them after another big earning surprise. Don't tell me that the markets are reflecting a bit of reality........
Dow tanked on financials/industries/commodities etc. Aust/NZ markets correlate with DJIA trades more so than NASDAQ/S&P + EZ is now going into panic again re: Italy/Spain bond spreads against German Bunds. Seeing the DAX sold off hard last session...very bearish signal.
Goggle doesn't mean anything to commodity/Asia trades, can't see Google mega profits doing anything for China. Since they both don't like each othe
Futures are basically 'unch'.
So tonights equation is:
GOOG beats lowball est = 12 global bank downgrades and a Spain downgrade
yepper....buy buy buy
Equities markets remind me of little kids with their fingers in their ears marching in a circle yelling 'lalalala..I am not listenng to you!!!!'
At least this time around the ratings agencies are starting to say...'can't blame us, we told you this shit was fucked'.
Man this is going to end so ugly...ridiculously ugly.
Very well organized timing from Gang of 7.
Too much apathy. Everyone thinks this is all fixed.
My 60 year old neighbor was pissed last 2 weeks because he lost so much. Now he jumps for the new plan of a plan to make some more crap up so he can keep his cash. He is clueless like 98% of the people I know. Are they clueless or do they just wish not to see.
Ratings are meaningless now and I think have been for some time. We all know that don't we?
When the 98% realize that we will see problems.
I'm going to roll the dice and predict another Rule 48 opening on Friday morning.
Well, about 4.5 hours out from the opening bell and it looks like I'm DEAD wrong on that Rule 48 opening. To the contrary ... futures are UP 66 points. Unreal. It's bizarro world.
Spanish make great wine though.
The Gap announced it is closing 1/3 of its stores in the USA by 2013. That should help those malls bottom line....bullish for retail stocks.
I think the government should step in and spend more borrowed money to bail the Gap out, or at least arrange for Fiat to take them over (with guaranteed loans).
C'mon...lets get this economy going dammit!
I think they should take over the Gap and begin producing the new Fiat jeans. Completely disposable and made in China.
my daughter says she will buy 10 pairs of those Fiat jeans, but only if they are totally expensive and pre-ripped a bit.
It is still an A, if it were C or D, I would get worried
Mayor Bloomberg Kills Off! Occupy Wall Street Friday @ 7am with a Park Clean Up!!
The Young Turk host Cenk Uygur explains how a park cleanup effort and new rules supported by New York City Mayor Bloomberg are designed to stop the Occupy Wall Street movement.
http://www.youtube.com/watch?v=Zqnf6U8NZmQ
The enablers are still getting away with theft. Imagine Standard & Poor's needed a cup of coffee and their credit card hit NSF. As a vendor, the transaction became terminated. The report is then sent to a credit agency who reports red flags. Standard & Poor's takes a defensive mode by giving their delinquent credit card holder a AAA rating. Problem solved. Lame example, but this is how it works.
Time for bedtime, grandpa warren is going to tuck me into bed. He has a new bedtime story to tell me. During dinner, he teased me a bit. Tell you story later, my milk and cookies come first says grandpa..
LOL
Add this to the list South Korea has put its forces on heightened alert after detecting unusual activityin the North ... The dow should go up 400 points Friday ...
OOPs , There it is! What really kills me is the complete lack of ( DXY)? Where in the hell is volume? Pussy ass bulls!
Europe is going to sink in the next few hrs. Greece/Italy/Spanish yields will blow out to hell. The longer those morons delay Greece invertible default, the more the markets will punish the rest of the PIIGS. I guess they gotta get their bailout TARP up and running ASAP to bailout out the greedy and stupid EZ banks.
Sell on the EUR, broke all MA's on the 1hr i.e overbought
http://en.wikipedia.org/wiki/Bennett_buggy
automobile converted into a horse drawn buggy!!
http://en.wikipedia.org/wiki/Great_Depression
http://en.wikipedia.org/wiki/File:GDP_depression.svg
What the World needs now is a Cheap BMW.
Well it was a dream ...until someone Greased the slide .... (Bitches)