Greek Debt Rated Junk, Spain Raises

Arthi Gupta
02 Jun, 2011
New York City

The European indexes slumped after a ratings agency cut credit rating of Greece to junk status with a negative outlook. Spain sold

[R]3:30 PM Frankfurt – The European indexes slumped after a ratings agency cut Greece's credit rating to junk status with a negative outlook. Spain sold €3.95 billion of 2014 and 2015 bonds. The European Union extended aid to Ireland and Spain.[/R]

U.S. index futures traded a fraction higher ahead of economic data and Asian stocks slumped on economic concerns and falling commodity prices.

European indexes faltered after Moody's downgraded Greece’s local and foreign currency bond ratings to Caa1 from B1, and assigned a negative outlook to the ratings. Moody's said there was an increased risk that Greece would fail to stabilize its debt position absent a debt restructuring.

The agency thinks that the current talks between the Greek government and the International Monetary Fund, the European Central Bank and the EU Commission will result in further official support for the Greek government and the announcement of additional austerity and structural reform measures.

German Chancellor Angela Merkel on Thursday reportedly said that there is no currency problem in Europe and the euro currency is stable.

Spain raised €3.9 billion in two bond auctions. The country's Treasury sold €2.75 billio of three-year bonds at an average interest rate of 4%, up from 3.6% in the last auction on April 7.

It also sold €1.2 billion in five-year bonds with the rate dropping to 4.2% from 4.5% on May 5.

In Paris CAC-40 Index declined 51.93 or 1.31% to 3,912.88 and in Frankfurt DAX index edged lower 83.37 or 1.19% to 7,134.06.

Market volumes were thin after a holiday in Sweden and Switzerland and many investors returning only on Monday.

Moody's Downgrades Greece

Moody's Investors Service downgraded Greece's local and foreign currency bond ratings deeper into junk status, citing heightened risk that the country will fail to stabilise its debt position without a debt restructuring.

The rating agency downgraded Greece's local and foreign currency bond ratings to Caa1 from B1, and assigned a negative outlook to the ratings.

However, the Greek finance ministry said in a statement on Wednesday that Moody's Investor Service has """"disregarded"""" Greek government's commitments to meet its fiscal target for 2011 and to accelerate its privatization program.

The government already met significant fiscal targets and in the next few days, will submit its medium-term fiscal strategy to Parliament, which will include specific commitments to continue its fiscal consolidation over the period 2012-15, the ministry added.

EU Extends Aid to Ireland and Spain

The European Commission approved the extension of bank support schemes in Ireland and Spain by an additional six-month period under the European Union state aid rules.

The EU said that the extended measures are well targeted, proportionate and limited in time and scope. Further, the measures are appropriate means of remedying a """"serious disturbance"""" in the Irish and Spanish economies, it noted.

Gainers & Losers

Bayerische Motoren Werke AG fell 0.26% to €60.45 after the automobile manufacturer's U.S. sales rose 16% from a year earlier in May, helped by sales of sport-utility vehicles and the new 5-Series sedan.

Daimler AG declined 1.79% to €47.64 after the German car maker said its May U.S. sales of Mercedes-Benz and smart vehicles combined improved 4.7% to 20,798 units from 19,871 units last year.

Deutsche Bank AG dropped 0.95% to €40.66 after the chief of investment bank unit Anshu Jain said that the bank is eyeing a pre-tax return on equity of at least 20% after 2013.

Nokia Corp. plunged 4.70% to $6.69 after the Finnish handset maker's Chief Executive Officer Stephen Elop denied the rumors that it may sell its cellphone unit to Microsoft Corp., stating they were baseless.

Roche Holding AG decreased 1.07% to Sfr148.40 after the Swiss healthcare company and Boulder, Colorado-based biopharmaceutical company Clovis Oncology Inc. jointly announced a deal to co-develop an in vitro Polymerase Chain Reaction-based companion diagnostic test.