Courtesy of Mish
S&P 500 futures plunged a quick 10 points on news Italy Rating Lowered by S&P, Outlook ‘Negative’
Italy’s credit rating was cut by Standard & Poor’s on concern that weakening economic growth and a “fragile” government mean the nation won’t be able to reduce the euro-region’s second-largest debt burden.
The rating was lowered to A from A+, with a negative outlook, S&P said in a statement. The company said Italy’s net general government debt is the highest among A-rated sovereigns, and now expects it to peak later and at a higher level than it previously anticipated.
S&P also said it lowered its outlook for Italy’s annual average growth to 0.7 percent for 2011 to 2014, from a prior projection of 1.3 percent. “We believe the reduced pace of Italy’s economic activity to date will make the government’s revised fiscal targets difficult to achieve,” it said.
“Italy’s economic growth prospects are weakening and we expect that Italy’s fragile governing coalition and policy differences within parliament will continue to limit the government’s ability to respond decisively to domestic and external macroeconomic challenges,” S&P said.
Italy’s downgrade may aggravate a volatile political situation — Berlusconi faces four trials — after a decade with virtually no economic growth that has undermined debt reduction. Its government debt was 119 percent of gross domestic product last year, more than any euro country after Greece.
S&P 500 Futures, 5-Minute Chart
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Euro Futures, 10-Minute Chart
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The market could easily be 2% higher or 2% lower 15 minutes from now. That’s how silly this crapshoot now is.
Intermediate-term there is absolutely no reason to be in this market unless you are hedged or mostly riding gold.
Barring dramatic bailout news (and perhaps even if there is some dramatic bailout news), expect Italian debt will likely be clobbered on this news. Longer-term it is Spain, Italy, and France that matters most, but short-term all eyes have been on bankrupt Greece, awaiting a proper burial.
*****
From Reuters:
Standard and Poor’s cut its unsolicited ratings on Italy by one notch, warning of a deteriorating growth outlook and damaging political uncertainty, in a move that took markets by surprise and added to pressure on the debt-stressed euro zone.
S&P’s downgraded its unsolicited ratings on Italy to A/A-1 from A+/A-1+ and kept its outlook on negative, sending the euro more than half a cent lower against the dollar.
The agency, which put Italy on review for downgrade in May, said that the outlook for growth was worsening and there was little sign that Prime Minister Silvio Berlusconi’s fractious center-right government could respond effectively.
Under mounting pressure to cut its 1.9 trillion euro debt pile, the government pushed a 59.8 billion euro austerity plan through parliament last week, pledging a balanced budget by 2013.
But there has been little confidence that the much-revised package of tax hikes and spending cuts, agreed only after repeated chopping and changing, will do anything to address Italy’s underlying problem of persistent stagnant growth.
Keep reading here: S&P cuts Italy one notch, outlook negative | Reuters.
