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Italy's credit rating was downgraded yesterday evening by ratings agency Standard & Poor's. This was Italy’s first downgrade in the past five years after Greece’s worsening financial situation has heightened concerns that the “Greek contagion” will also take hold of countries like Spain and Italy. S&P lowered the country’s rating from A+ to A, saying that the weakening economic growth, “fragile” government, and increased borrowing costs will create difficulties for decreasing the second largest debt burden in Europe. Yields on 10-year Italian bonds increased today by three basis points to 5.619%, which is 385 basis points more than yields on analogous German bonds. The European Central Bank had to buy Italian and Spanish bonds last month after their yields increased to a record high for the Euro amid fears that they will be the next victims of the two year-long debt crisis which led to bail-outs for Greece, Ireland, and Portugal. Another ratings agency, Moody’s Investors Service, will decide next month whether...

America's debt problem is a combination of: overspending; not saving enough money; and depending upon the government for assistance. Many Americans live well beyond their means with the aid of credit cards. Some credit cards don't even require one to list what one's annual income is in order to gain access to a credit card. Most people today are not using their credit lines to buy expensive furs, jewelry, fancy lobster dinners, evening black-tie soirees requiring Harry Winston diamonds on loan, or quick jaunts by private plane to Paris, France for a night on the town. Most people today are just using credit cards to get by with what they have. It is not that people are overspending to buy caviar; most are buying mac and cheese and stocking up their carts with instant noodle soup from giant retailers whose goods mainly come from China. People are using their credit cards to buy things they need--like food, water, and shelter. They...

On the eve of publication of data on housing prices, DT Trading economists are predicting the biggest drop in a year ending in June, which assumes stagnation in the housing market and a continuing slow recovery in the US. According to the average estimate from 31 economists polled by Bloomberg, the S&P/Case-Shiller Home Prices Index in 20 cities dropped 4.6% since June 2010, which was the biggest drop in 12 months, since November 2009. Another report may show that consumer confidence fell in August to the lowest level in 10 months. It will probably only be possible to speak about a recovery in housing prices a few years from now, when the stream of cheap housing being offered as a result of unpaid mortgages finally dries up. The unemployment level is contributing more to the depressed situation on the housing market; it is hovering around 9%, while strict crediting regulations are painfully hitting borrowers’ pockets. DT Trading analysts explain that...

German Free Democratic Party lawmaker Frank Schaeffler said Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble should make the case for a ‘temporary’ exit of Greece from the Eurozone, Handelsblatt has reported. Schaeffler, criticizing the German government’s handling of the Greek crisis, said Greece should be given the option of temporarily leaving monetary union as this is the only “sensible way” to make the southern European country’s economy competitive again, according to the German newspaper. German Chancellor Angela Merkel said that the euro debt crisis CANNOT be solved in one step “tomorrow” and that there won’t be a single “spectacular” step at the July 21st European Union summit in Brussels to deal with the problem. Speaking to reporters today in Hanover, Merkel said the euro region’s problems must be solved “from the core,” which means reducing debt and increasing competitiveness.

Optimism spread through financial markets in Europe and the United States after strong earnings from U.S. companies and better than expected U.S. housing data, which boosted confidence among investors, as they targeted higher yielding assets against lower yielding ones, which pushed the U.S. dollar to drop against majors. Several U.S. banks and companies reported their earnings for the second quarter of 2011, where IBM, Coca-Cola Co, Wells Fargo, Johnson & Johnson, Bank of New York Mellon, and Bank of America posted results that topped estimates, which provided stock indexes with strong momentum to rise, although Goldman Sachs, the giant U.S. bank reported disappointing results, however, traders were still focused on the bigger picture, since most U.S. firms reported strong earnings so far. Meanwhile, U.S. housing starts and building permits rose in June above expectations, which boosted confidence among investors, and increased demand for higher yielding assets, where housing starts rose by 14.6% to reach 629,000, well above expectations of 575,000, and building...

Disagreement among European policymakers on Greece and the handling of the Eurozone's debt crisis helped push 18-month Spanish Treasury-bill yields to 9-year highs today. Spain sold €4.4bn of 12- and 18-month T-bills. Concerns that little progress would be made at a Eurozone meeting on Thursday has spooked fixed-income investors, sending debt costs for large peripheral economies Spain and Italy to euro-era highs on Monday. Spain will face a still tougher test of investor appetite when it seeks to borrow over a much longer term on Thursday, issuing up to €2.75bn in 10- and 15-year bonds. Ten-year bond yields in Spain fell back slightly on the secondary market Tuesday, though held near the peak of 6.31%t with a move above 7.0% unsustainable for the Eurozone's fourth largest economy. The Treasury sold €3.8bn of the 12-month T-bill, paying an average yield of 3.702% v 2.695% at the previous auction last month. The marginal yield of 3.76% was the highest level in a primary auction...

      Investors targeted higher yielding assets during the European session on Tuesday after some companies reported earnings that beat estimates. Those good earnings shifted the attention from Europe's and US's debt worries. Now markets will be eyeing the earnings from the big U.S. financial institutions. The dollar weakened today against its major counterparts as the worries about the U.S. debt situation persist. Officials must come to an agreement about the debt ceiling till August 2, deadline. The European leaders will meet in a summit later this week to further discuss Greece's new rescue plan. Pessimism will continue to dominate markets and caution may increase demand on safe heaven any moment as long as debt problems in the United States and Europe continue to weigh down on overall confidence. This keeps high demand on gold which today rose to a record high at $1609.97 level. Today the German ZEW economic sentiment survey showed current conditions being better than expected. This managed to give an extra...

Market Summary:   Global markets continued to sell off today over ongoing concerns regarding the debt crisis in Europe and the ongoing budget ceiling debate in Washington, D.C. The White House plans to veto the budget bill due to come to vote on Tuesday and still opposes the “cut, cap, and balance” proposal put forward from the other side of the aisle. Still, work continues on “Plan B,” a fallback plan to avoid default on the August 2nd deadline, and a “secret” meeting apparently was held at the White House to pursue these ongoing discussions. Gold reached a new record while the U.S. Dollar and Oil climbed. Market Numbers Summary:   Dow Jones Industrials (DIA): -95pts; -0.8% S&P 500 (SPY):                    -11 points; -0.8% NASDAQ (QQQ)                   -25 points: -0.9% Russell 2000 (IWM):             -13 points; -1.6% Tomorrow’s Action:   Economic Reports: June Housing Starts June Single Family Permits Notable Earnings Reports: Coca Cola Wells Fargo Bank of America Goldman Sachs Johnson and Johnson Yahoo! Have a great evening, John Disclaimer:  Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change...

Pessimism dominated global financial markets on Monday, where traders were concerned over debt problems in the United States and Europe, where traders are speculating EU leaders will fail to reach a resolution to the EU debt crisis in a summit this week, while U.S. lawmakers continue to negotiate raising the debt ceiling in the United States before an August 2, deadline. Meanwhile, European markets were under immense pressure after analysts signaled that the European stress tests results that were released last week don’t address the exposure of European banks to the Euro Zone’s debt crisis, which spread further pessimism in markets. The rising wave of pessimism in markets led investors to target low yielding and safe assets against higher yielding ones, where investors targeted lower yielding currencies and gold, noting that gold prices rose to a record high earlier on Monday above $1600 an ounce. Stocks in the United States fell by opening on Monday, where the Dow Jones Industrial Average was down...

The seasonally adjusted (SA) unemployment rate, following the sharp downtrend from its peak in April 2009 of 14.8% to a single-digit 9.9% in March 2011, showed a slight increase to 10.0% in April 2011. Despite the continuing increase in the SA labour force participation rate (49.9% in April), the SA employment rate (44.9%) maintained its improvement, implying that job creation in the Turkish economy is still strong, and the improvement in the unemployment rate will continue in coming months. In fact, the job opportunities index, derived from the consumer confidence index, reached its highest level since March 2006, confirming our view that the unemployment rate should maintain its downtrend. The non-farm unemployment rate, on the other hand, fell to its lowest level in the last 2 years at 12.5%, once again indicative of a recovery in labour market conditions to pre-crisis levels. It should be noted that the uptrend in labour force participation still limits the decline in employment rates and...