PORTUGAL and GREECE ratings cut by S&P

tomterm8

lostinrates wrote: »

Hello.

a serious economics question. why has this been so very impactful on our stock market today? Its not been far out of the financial pages as a source of future grief, and it seems the market reacted fairly strongly, as if this were serious new news...so why ?

Well:

(a) Our stock market, like the US stock market, is full of flag of convenience multinationals who chose to base their operations in the UK even though they don't actually do much business here and
(b) Europe is our biggest export market and
(c) You shouldn't always believe 'market narrative' anyway... people look for reasons for the market to move, and create a narrative, but most of the time the markets move with little rhyme or reason.

plus

(d) Credit ratings agencies got it badly wrong before the crises, and should be more highly regulated, because they appear to be dysfunctional.

twadge_face

UK next innit. Ka-BOOM!

Not that kind of boom, LOL.

Kohoutek

Italy next maybe...their last bond auction came very close to failing, pretty alarming stuff.

It appears Italy may be next: the country sold €9.5 billion in 6 Month Bills at 0.814%, up dramatically from 0.568% just a month ago, on March 26. What is scariest is that the Bid To Cover on the auction tumbled from 1.56 at the previous auction to a just barely above passing 1.02. At this rate Italy will be unable to find bidders for its next Bill auction.

http://www.zerohedge.com/article/italy-next-€95-billion-bill-auction-2-bps-away-failure-6-month-bill-yielding-higher-spains

mbga9pgf

Yay! Cheap Euro holidays!

I bet ze Germans are loving this! Their Export market is going to take off pretty quickly if the euro is trashed.

ruggedtoast

House prices are well going down because of this. You lot are going to be crying. Some of you anyway, not the ones who want them to. You'll be well happy.

mbga9pgf

Its going to do wonders to the UK bond market if the vigilantes smell weakness from our government in sorting the deficit.

Degenerate

mbga9pgf wrote: »

Yay! Cheap Euro holidays!

I bet ze Germans are loving this! Their Export market is going to take off pretty quickly if the euro is trashed.

I think they'll be more concerned about whether their banks, which were already in trouble, will be utterly bankrupted by the inevitable Greek default. Here's some info I found (nicked from another forum, so I won't swear to it's accuracy, though it seems perfectly plausible.):

Greek debt to foreign banks in $Billion USD: - (source FAZ –Finanzmarkt - 09.04.2010)

Germany - 43.2
France - 75.5
Switzerland - 64.0
USA - 16.4
UK - 12.3
Holland - 11.8

Others - 79.4

Total: $302.6B USD

Apparently the British and Swiss numbers consist mainly of holdings on behalf of foreign customers, so would represent losses to those customers rather than the banks or British taxpayers. The Euro-zone holdings are a different matter. A significant haircut on Greek debt would deal a severe blow to German and French banks. They should have properly recapitalized them 18 months ago like we did - now they will have no choice.

mbga9pgf

2 things I predict.

1) This may cause a cascade, but it wont be the end of the Euro. This is going to be good for stock market investments in 6-12 months time as prices will have retracted
2) the eurozone will reach fast recovery before us.

Count_Dante

What was so different about the economies of Greece and Portugal today, as opposed to a month ago (say), that prompted this move? Surely rating agencies should be taking a long term view?

mbga9pgf

They werent taking deficit reduction seriously enough..

If you look at the Spanish and italian bond markets, you can see yields creeping up and they almost didnt sell enough the other day.

At the end of the day, the buck has to stop somewhere, Moodys must feel they have given Greece enough rope to hang themselves and the militancy of the population to an IMF bailout doesnt help matters. They have some serious austerity coming their way soon.