Death Star Economics



Downgrading Germany – breaking the last taboo

The calm before the storm when we had time to worry about China’s growth and American unemployment are over. SO over. Europe exploded back onto the center stage, with Moody’s doing the unthinkable: downgrading Germany.

Well, the rating outlook for GermanyLuxemburg and the Netherlands also had their outlook cut, while Finland’s Aaa-rating was confirmed as stable. The reasons for the downgrade were the possibility of Greece’ exit from the eurozone and the consequences thereof, as well as the debt burden of Spain’s and potentially Italy’s bailout, which would have to be carried jointly by the country’s named above. The Handelsblatt says a Greek default would cost Germany at least €45bn, while I remember other estimates exceeding €85bn…

German 10-year bond yields grew to 1.27% on the news (they were at 1.12% yesterday…). German manufacturing [sentiment] data came in more than a whole point below the lowest estimate, which is bad news even if you don’t believe in the relevance of PMIs. YET, may I just say it… the eurozone rises and falls with the German economy, but not all is lost. As a matter of fact, some say any reaction to the news will be exaggerated because it’s August and there’s not a whole lot else going on.

Spain’s and Germany’s Finance Ministers are set to meet today, presumably to start a support group for officials of country’s with poor credit ratings.

And after a pretty bad day yesterday, Italy and Spain have re-imposed three-months short-selling bans. For Spain, this is a first. In the words of Felix Salmon

A ban on short selling didn’t reverse a drop in stocks when the SEC imposed one covering 19 financial companies in July 2008, including, ahem, Lehman Brothers. Spain and Italy believe they can achieve more success – the countries have reinstate a ban on short selling the shares of their financial institutions.

And in response from MarketBeat

Here’s a news flash: Short-selling bans won’t solve Europe’s fundamental problems.

In good old European fashion, let’s do something ineffective first.

China’s PMI on the other hand doesn’t look quite so bad, but that’s not because of the thriving manufacturing industry [as a matter of fact, the manufacturing index is down], but rather because of declining unemployment figures.

In terms of earnings, Apple’s Q2 report is due this evening, as well as those of the two largest American tobacco companies Altria (i.e. Philip Morris) and Reynolds American. The latter are expected to report very positive growth figures, despite the decrease in smokers:

Their main attraction: an average dividend yield of 4.7%, which is more than three times the yield on 10-year, U.S. Treasury notes.

In line with today’s news, Joris Luyendijk’s banking blog is featuring someone who used to work for a rating agency in Londonread article

So long.

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One Response

  1. princess1960 says:

    thank you to day very honest …

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