U.S. Stocks Drift; Debt Ratings of Italy, Spain Lowered

Bikram Pandey
07 Oct, 2011
New York City

Stocks in New York trading drifted after the release of better than expected net new jobs in September and turned lower after sovereign debts of Spain and Italy were lowered. For the week S&P 500 index increased 2% and declined 8% in the year.

[R]5:15 PM, October 7, New York – Stocks in New York drifted after the release of better than expected net new jobs in September and turned lower after debt ratings of Spain and Italy were lowered. For the week S&P 500 index increased 2% and declined 8% in the year so far.[/R]

U.S. stocks in the early trading gained after employers added net new jobs more than expected in September. The slow but steady advance was knocked off in the afternoon after a rating agency lowered its rating by two notches for Spain and one notch for Italy.

U.S. employers added 103,000 jobs in September and chain stores retail sales increased at a faster pace. Unemployment rate was steady at 9.1% and public sector trimmed 35,000 jobs.

The rating agency’s decision lagged market perception but only highlighted widening debt crisis in the euro zone and reminded investors the tough road ahead. The euro in New York trading declined.

The yield on 10-year Italian bonds increased 7 basis points to 5.49% and Spanish bonds declined to 4.95%. However, after the European market close the ratings agency Fitch SA lowered local and foreign long term debt rating for Spain and Italy.

Italian credit rating was lowered to A+ from AA- and Spain’s rating was cut to AA- from AA+. Fitch noted in its statement the euro crisis “intensification,” regional financial risk and the slower Spanish growth. The ratings agency estimated Spain’s economic growth below 2% through 2015.

The ratings agency left its rating on Portugal at BBB- and said it will review the rating again in the next few months.

Moody’s Investors Service today lowered its ratings of twelve UK financial institutions. The move to lower the downgrade was driven by the agency’s belief that the British government was less likely to offer support in the event of financial stress.

Market for sometime has been worried that the UK government may not be able to offer any financial support in the next downturn as the government struggles with weak economy, ill-timed spending cuts and rising military expense to invade Libya.

Lloyd TSB Bank and Santander U.K. ratings were lowered to A1 from Aa3, R.B.S. and Nationwide Building Society debt ratings were cut to A2 from Aa3.

European markets advanced after the central bank offered more liquidity to troubled banks and politicians voiced support for bank recapitalization. Banks and resources linked stocks led the gainers.

Germany and France differ on how to access the rescue fund and Holland approved the expansion of European Financial Stability Facility. Slovakia and Malta, the only two remaining nations of the 17-member euro zone, are scheduled to approve the facility in the next few weeks.

Japanese investors put their faith in the political voices in the euro zone but await concrete actions in recapitalizing banks. Sony Corp is close to acquiring its stake in the mobile phone venture with Ericsson. Two mobile telecom services providers KDDI and Softbank gained.

Australian benchmark index gained for the third day in a row and closed up 3.9% in the week. Resources linked stocks led the gainers after commodities rebounded in Asian trading. National Leisure & Gaming ltd, the operator of 35 pubs entered into voluntary administration.

Commodities, Bonds and Currencies

The yield on 10-year U.S. bond closed up to 2.07% and 30-year bond increased to 3.01%.

The U.S. dollar increased to $1.339 to one euro and closed higher against the Japanese yen to 76.86 yen.

Immediate delivery futures of Texas crude oil increased $0.22 to $82.81 a barrel and futures of natural gas decreased 11 cents to $3.48 per mbtu and gasoline price decreased 3.40 cents to 265.20 cents a gallon.

In metals trading, copper increased 4.50 cents to $3.29 per pound, gold decreased $13.50 to $1,639.70 per ounce and silver decreased $0.79 to $31.21.