Spain Credit Rating Downgraded

The woes for Spain continue to
surface with Standard & Poor’s cutting its credit rating by two
notches to ‘BBB-‘ which is only one notch above junk status. In a
press statement released last night S&P said ‘The negative
outlook on the long-term rating reflects our view of the
significant risks to Spain’s economic growth and budgetary
performance, and the lack of a clear direction in Eurozone
policy’.  The result of the downgrade could start to show once
again in an increase in the cost of borrowing levels for the
country putting further pressure on Spain to officially ask for a
bailout from the ESM.  

Greece is also in the spotlight as
lenders negotiate with the Greek government over new budget cuts in
advance of agreement on a 130 billion euro tranche required.
Comments by IMF officials suggest that the fund will seek
commitments from European policy makers to help Greece in a variety
of ways and provide more time. The renewed uncertainty now
surrounding Spain and Greece however is weighing on the euro which
is down in the last two days.

Over to the US and the Fed beige
book was released last night concluding that activity ‘expanded
modestly’ last month supported with improvements in housing and
auto sales. The US economy is still not firing into life but is at
least showing some positives which are not significant enough to
detract from the QE programme. The USD has gained this week as
Europe falls back into the spotlight reducing the appetite for
risk.

The focus today will be on Europe
as the market responds further reaction to the Spain downgrade as
we move closer to the EU summit later this month.