week in focus

adrianc · 發表於 2012-1-16 22:22:58

S&P made its long awaited announcement on Friday night following the placement of 15 euro-zone sovereigns on watch negative in early December. The ratings of seven countries were left unchanged (Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands), while there were one notch downgrades for five countries (Austria, France, Malta, Slovakia and Slovenia). Two notch downgrades were given to four countries (Cyprus, Italy, Portugal and Spain) and both France and Austria lost their ‘AAA’ status after being revised to ‘AA+’. All countries were removed from watch negative, but 14 countries have negative outlooks except Germany and Slovakia, indicating that S&P see at least a one-in-three chance that the rating will be lowered in 2012 or 2013. The markets will have their chance to react to this event today, the fallout could be extended as S&P are likely to also take rating action on various Euro-zone banks in the subsequent days as is often the case following a sovereign credit rating revision. The other closely monitored repercussion is the almost inevitable downgrade of the EFSF from its current triple A status, this could impact Tuesday’s EUR 1.5bln 6-month t-bill auction for the EFSF as markets are expected to continue to be influenced by the repercussions of S&P’s actions.

However, since the start of 2012, borrowing costs for Euro-zone states have dropped in the shorter-end of the curve, as the impact of the ECB’s first LTRO appears to have alleviated some short-term funding concerns. In light of the ECB’s ability to provide liquidity to the Euro-zones banks, and indirectly the sovereign states, the impact on funding for countries downgraded by S&P could well be minimal. The litmus test will be observed as Euro-zone states are issuing around EUR 30bln this week in bills and notes with auctions from Portugal, Spain and France expected to be among the highlights.

Greece can be expected to remain a prominent issue after Greek PSI talks broke-down on Friday. The disagreements are centered around the size of the bondholder write-down’s and whether or not the haircuts will be voluntary. The Greek government announced they expect talks to resume on Wednesday with negotiators, with time running out to conclude a formal solution. Greece has a EUR 14.4bln bond redemption due in March and any deal PSI will need to be resolved with haste in order to put in place the financing Greece requires to pay its creditors and avoid a disorderly default.

As Euro-zone debt concerns remain the focus for the market, data could well take a back seat to the headlines which are expected to drive near-term price movement. Key data from Germany’s ZEW survey is likely to be a significant event this week as confidence and growth have become the most important attributes of the financial markets focus. There could well be a growing interest in the daily LIBOR fixings as well as the ECB’s weekly announced bond purchase extent with credit concerns a primary focus for economists and traders of late.

Elsewhere, we enter the second week of US corporate earnings season, this period will see the majority of America’s large financial institutions report their earnings, with Citigroup and Wells Fargo on Tuesday, Goldman Sachs on Wednesday and Bank of America alongside Morgan Stanley due Thursday. Last Friday saw JP Morgan report earnings in-line with market expectations, however their quarterly revenue was weaker than the consensus and the financial bell-weather also reported a quarterly drop of over 20% in profits. US banks historically do not offer guidance on future earnings expectations so the likely drivers of their share price movements will be the current released numbers as opposed to future expectations, another factor to look for will be any increase in dividends or share buy-backs. In other sectors, we have earnings from Google, IBM and Intel, all due after-market on Thursday as we look for figures from over 20 major US S&P listed firms over a four day period with Monday a stock market holiday in the US due to Martin Luther King Jr. day.