June 22, 2012
Sentiment is mixed this morning as Merkel, France’s Hollande, Italy’s Monti, and Spain’s Rajoy meet before next week’s EU summit. EU stocks are off their lows of the day, but are trading below yesterday’s closes, except for Spain’s IBEX and Italy’s FTSE MIB which have both fully rebounded into gains for the day. EU sovereign debt spreads to bunds are mostly tighter this morning. U.S. futures are moderately higher on the day, the FX market is relatively muted, commodities have experienced only modest price moves overnight, and Treasury yields are mixed with the 2yr down -0.3bps versus a gain of +2.1bps for the 7yr.
Moody’s Cuts the Credit Rating of 15 Banks
Moody’s Investors Service downgraded the credit ratings of 15 large global banks, after announcing on Feb. 15 that it was reviewing grades for 17 banks. Credit Suisse received the maximum reduction Moody’s can make when conducting a review of global banks with capital market operations, cut three levels. The banks with the highest stand-alone credit ratings include JPMorgan (despite the $2B trading loss), HSBC Holdings, and the Royal Bank of Canada. On the low end of the spectrum are Bank of America and Citigroup who are but two levels above junk at Baa2. Societe Generale and Royal Bank of Scotland Group were cut one grade, and Deutsche Bank AG, BNP Paribas, and Credit Agricole SA (the latter being French) were cut by two levels. Goldman Sachs, Morgan Stanley, and Barclays all had their short-term ratings cut from P-1 to P-2. “All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital-markets activities,” Moody’s Global Banking Managing Director Greg Bauer said in the statement.
To read the full story on Bloomberg.com, click here.
Today’s Economic Data Lineup (EST)
11:00 am: Fed to purchase $1.5b-$2.25b notes in 2/15/2036-5/15/2042 range
- The U.S. Senate passed a bill by 64 to 35 that would cut agricultural programs by $23.6B over the next ten years, primarily through ending direct payments to growers regardless of commodity prices; this would be the largest policy change in decades.
- BlueMountain Capital Management, run by former JPMorgan executive Andrew Feldstein, is said to be helping JPMorgan unwind the massive positions in credit derivatives the so-called “London Whale” created. The hedge fund has been compiling trades in recent weeks that would offset JPMorgan’s risk in Series 9 of the Markit CDX Investment Grade Index, and then selling positions to the bank.
- Sales of existing U.S. homes fell more than expected in May, showing that the recovery in residential real estate is going to be a bumpy road. Purchases of existing properties fell -1.5% to an annual rate of 4.55M, lower than the median forecast of economists that called for a 4.57M pace.
- U.S. home prices rose for the third straight month as the property market shows signs of stabilization, according to a report yesterday by the FHFA. Home prices rose +0.8% in April from the previous month, beating the average estimate of 19 economists that called for a +0.4% gain.
- Manufacturing in the Philadelphia region shrank in June at the fastest pace in nearly a year, showing the global economic slowdown is having a material impact on factories in the U.S. The Federal Reserve Bank of Philadelphia’s general economic index fell to -16.6 in June, the lowest level since August, from -5.8 in the prior month. Economists had forecast an improvement in the gauge to zero, the dividing line between growth and contraction.
- The Bloomberg Consumer Comfort Index was -37.9 in the period ended June 17, down from a four-week high of -36.4. The share of households viewing the economy as heading in the right direction fell to 22% this month, the lowest level since January, pushing the Bloomberg monthly expectations gauge to -11 from -1 in May.
- Initial jobless claims fell 2K yesterday to 387K, above the median forecast of 45 economists calling for a drop in claims to 383K; the four-week moving average climbed to its highest level this year.
- Euro-area finance ministers battle over different strategies to contain the debt crisis, with the financially stable creditor countries resisting leniency for Greece’s bailout terms and downplaying concerns about the bailout of Spanish banks.
- German business confidence fell to its lowest level in more than two years, falling to 105.3 in June from 106.9 in the previous month.
- Inflation in Malaysia eased for the seventh month in a row in May to the lowest level in nearly two years, allowing the central bank more room to hold interest rates and boost economic growth. Consumer prices rose +1.7% last month from a year earlier, matching economist estimates, after rising +1.9% in April.
“Don’t wait for something big to occur. Start where you are, with what you have, and that will always lead you into something greater.”
-Mary Manin Morrissey
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