Debt Ceiling Debates Alter S&P Ratings Bias; Italy Votes on Austerity... |
Standard & Poor’s has placed the credit rating for the US on negative watch on the argument that internal disagreements within the government are creating significant obstacles for a seamless resolution in raising national debt limits. S & P is suggesting that there is a 50% chance that the long term debt rating for the US could be lowered by the end of the third quarter.
The US Fed Chairman (Bernanke) gave his congressional testimony for the second day and discussed possible outcomes for the debt ceiling debate (Fed purchases of the defaulted debt). The spokesman for the President said that there is an agreement to reduce spending by $1.5 trillion Dollars, with a possibility for an increase of $200 billion, if needed. Some analysts have suggested that these amounts will not be enough to solve the problem for the long term, which would mean that a similar vote would need to be undertaken again in the future. Regional macro data is showing improvements in retail sales and market attention will now turn to Friday’s CPI numbers. The EUR/USD ranges at 1.4115-1.4200 while the USD/JPY remains weighed down at 78.90-79.30.
Bernanke’s comments were largely inline with what has been said previously (tone of general caution) but came with suggestions that further rounds of quantitative easing could still be seen. Bernanke said that the second round of QE lowered long term interest rates by 25 basis points and, on a monthly average, added 30,000 jobs to the economy. These would have been disappointing facts when these plans were initiated, so it was no surprising that the market reaction to the comments was unfavorable.
In the EU, it is now starting to look like there will not be an emergency meeting on Friday, so market attention can now begin to center on the banking stress tests that will begin soon. The Italian Senate passed the approval to implement austerity measures and the congressional vote will be seen tomorrow. The congress is more balanced in terms of political majorities so there is still an uncertainty factor as it is less likely that the vote will pass in this house. Today, macro data will come in the form of Eurozone trade balance.
In Japan, the Finance Minister (Noda) reiterated previous concerns about the current level of Yen strength, as all the recent volatility has been moving in one direction. But there were no specific comments about plans for BoJ intervention. The chief cabinet secretary (Edano) said that Japan is worried about the effects that currency levels will have on exporters but also failed to hint at central bank intervention.
Technicals:
The DAX is continuing to rollover after meeting resistance at the 50% retracement of the drop from 7550. This week, we have seen lower lows on the hourlies so there is very little to suggest that we have started forming a meaningful bottom. Short term support comes in at 7160. Preferred strategy here is to sell rallies until we start to see some breaks of resistance. The first sell zone comes in at 7230, followed by 7780.
