Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Just when you thought it was safe to go into the water (insert proverbial Jaws theme here) – after the bell S&P was kind enough to downgrade Spain. Futures are down about 0.4% in after hours so we’ll see what tomorrow brings. Everyone knows Spain and Italy are the next in line to get the ‘business’ (as Wally and the Beaver would say it), but when and to what degree before the Germans/ECB relent with an aid package is unknowable. Usually it needs to get very bad before someone comes to the rescue, unlike the U.S. where a 3% correction in markets creates immediate response.
Any rating agency telling us about woes in Spain is not a surprise to anyone – as always it is the reaction to the news, not the news that matters. Unfortunately for those of us who like to sleep, the news cycle is 24 hours a day with U.S. markets hostage to news overseas. As for markets, S&P 1392 is the key level go forward after today’s breakthrough. It will be important to hold in the days ahead.
Zerohedge has the details:
- We believe that the Kingdom of Spain’s budget trajectory will likely deteriorate against a background of economic contraction in contrast withour previous projections.
- At the same time, we see an increasing likelihood that Spain’s government will need to provide further fiscal support to the banking sector.
- As a consequence, we believe there are heightened risks that Spain’s net general government debt could rise further.
- We are therefore lowering our long- and short-term sovereign credit ratings on Spain to ‘BBB+/A-2’ from ‘A/A-1’.
- The negative outlook on the long-term rating reflects our view of the significant risks to Spain’s economic growth and budgetary performance, and the impact we believe this will likely have on the sovereign’s creditworthiness.
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