February 25, 2021

Greek and Cyprus Credit Ratings Cut

S. P.’s rating for Greece, already in junk territory, was reduced two notches to CC, with a negative outlook. In a statement, S. P. said that the proposed restructuring of Greek government debt as part of a second bailout was a selective default — a prospect that ratings agencies had warned about when the plan was being discussed.

S. P. also said that despite the new aid package agreed on last week, there was still a good chance that Greece would default on its debt.

Under the second bailout, banks and other private investors are to contribute about 50 billion euros ($72 billion), by swapping their existing debt for new bonds.

“Standard Poor’s has concluded that the proposed restructuring of Greek government debt would amount to a selective default under our rating methodology,” the agency said. “We view the proposed restructuring as a ‘distressed exchange’ because, based on public statements by European policy makers, it is likely to result in losses for commercial creditors.”

Moody’s cut Cyprus’s long-term government bond rating two levels to Baa1 — still an investment grade — from A2. It assigned a negative outlook, signaling that the next move may be another downgrade, and cut its short-term ratings.

An explosion at a naval base this month badly damaged the Vasilikos power plant in Cyprus. That has caused blackouts, and Moody’s said that the power shortage was likely to hurt the economy, which it now expects to stagnate this year and expand only 1 percent next year.

Moody’s also cited the “increasingly fractious domestic political climate” and “the material risk that at least some Cypriot banks will require state support over the medium term as a result of their exposure to Greece.”

Cypriot bonds fell on Wednesday and Italian and Spanish bonds dropped as investors became increasingly concerned whether the package assembled by European leaders to help Greece’s troubled finances and restore confidence in the euro zone would be enough. The yield on Cyprus’s 10-year bond rose 0.13 percentage points to 10.043 percent.

Banks in Cyprus continue to hold “substantial” Greek debt and will be affected in the case of a sovereign debt default, Moody’s said.

Moody’s also said it was concerned about the large role the banking sector plays in the Cypriot economy. Bank assets amount to about 600 percent of gross domestic product in Cyprus, excluding foreign bank subsidiaries, it said.

The July 11 explosion that destroyed the plant and killed 13 people also rattled the government. Costas Papacostas, the defense minister, and Lt. Gen. Petros Tsalikidis, chief of the national guard, resigned amid criticism that they had failed to take steps that could have prevented the accident. Some 98 containers of explosives were left stacked for more than two years in an open field near the power station.

The political friction might make it harder for the center-left government, which does not have an absolute majority in Parliament, to push through spending cuts and privatizations announced on July 1.

“This adverse development increases implementation risk to the government’s plans, many of which will require not just cross-party support but also acceptance by the trade unions,” Moody’s said.

On Tuesday, a number of parties accused the government of backtracking on reforms, Reuters reported from Nicosia.

Cyprus, which adopted the euro on Jan. 1, 2008, is seeking to bring down a budget deficit that hit 5.3 percent of gross domestic product last year.

“The Cypriot banks have been considered safer than the Greek banks and have received a lot of the deposit outflow from Greece,” Panicos Demetriades, a professor at the University of Leicester in England, said, adding that the banks have large businesses in Russia. “However, the problem is that a small country like Cyprus cannot afford to support such a large banking system if it gets into trouble.”

Article source: http://www.nytimes.com/2011/07/28/business/global/moodys-downgrades-cyprus-over-economic-woes.html?partner=rss&emc=rss

Stocks & Bonds: Hopes for Greek Bailout Help Most Shares Gain

Shares gained as Germany agreed under pressure from France not to force private investors to take on some of the burden of a new bailout package for Greece. The announcement in Berlin meant Germany was backing away from a sticking point with the European Central Bank on the issue.

The market pared its gains late in the day, however, after Moody’s Investors Service put Italy’s government bond ratings on review for possible downgrade. The rating agency cited growth challenges, a likely rise in interest rates and risks posed by changing funding conditions in Europe as among the reasons for the review.

At the close, the Dow Jones industrial average was 42.84 points, or 0.4 percent, higher at 12,004.36, while the Standard Poor’s 500-stock index was up 3.86 points, or 0.3 percent, to 1,271.50. The Dow rose 0.4 percent and the S. P. edged up just 0.04 percent for the week — the first weekly gains since April 29.

The Nasdaq composite index closed lower Friday, falling 7.22 points, or 0.3 percent, to 2,616.48, its fifth consecutive weekly loss.

The euro continued to be buffeted by European debt developments, reacting sharply on Friday to the announcement by Chancellor Angela Merkel of Germany about the Greek bailout.

“That is when the euro popped,” said Brian Dolan, the chief currency strategist for Forex.com. The European currency rose to $1.4306 in late New York trading from $1.4207 late in the day on Thursday.

Mr. Dolan said that the debt issue was likely to continue to weigh on the European currency, however. “You get a short-term rebound in the euro but the long-term issues are still there, and that is going to prevent the euro from a sustained recovery,” he said.

In European markets, the CAC-40 in Paris rose 31.43 points, or 0.8 percent, to 3,823.74. The DAX in Germany was up 53.85 points, or 0.8 percent, at 7,164.05, and the FTSE in London gained 16.13 points, or 0.3 percent, to 5,714.94.

Bruce McCain, chief investment strategist of Key Private Bank, said concerns about European debt and a slowdown in the United States economy had probably pushed United States stock prices down too far, too quickly. “We priced in a lot of negatives over a short time period,” he said. With investors having reduced their exposure to equities, he said, now the market “has the opportunity to rally a bit.”

In the bond market, Treasury issues slipped Friday after rallying on Thursday in response to European debt worries. The Treasury’s benchmark 10-year note yield fell 5/32, to 101 18/32, and the yield rose to 2.94 percent.

Analysts said that even if Europe can agree on the details of a rescue package for Greece, worries will persist about political stability in the country as well as a possible contagion effect on Ireland, Italy, Spain and Portugal.

“The problems in the euro zone don’t begin and end with Greece,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company.

In stock market trading on Friday, financials, consumer staples, utilities and telecommunications shares rose by more than 1 percent. Among the gainers, I.B.M. rose 1.8 percent to $164.44, JPMorgan Chase gained 1.1 percent to $40.80, ATT climbed 1.1 percent to $30.77 and Microsoft rose 1.1 percent to $24.26.

Among the day’s biggest decliners was Research in Motion, maker of the BlackBerry smartphone. The company, which has struggled to compete with Apple’s iPhone and Google Android phones, reduced its earnings outlook for the second time this year after the market close on Thursday. RIM shares plunged 21.45 percent Friday to $27.75.

Article source: http://feeds.nytimes.com/click.phdo?i=e68cd5b2f3f7475651530a650f349d8c

Wall Street Slips as Oil and Commodities Drop

Demand for gasoline in the United States fell by the largest amount in seven weeks, the Energy Information Administration said, a signal that consumers are conserving money as gas prices near a national average of $4 a gallon. Gas futures fell almost 8 percent. Crude oil fell back below $100 a barrel, a loss of more than 4 percent.

Fewer fill-ups may result in a drop in consumer and business spending as customers forgo trips to malls and restaurants and companies ship fewer products. That, in turn, could lead to lower corporate earnings and halt a stock rally that has sent the stock market up 7 percent this year.

“People are becoming more conservative in their outlook and their spending as oil prices have risen, and that’s making the market become more concerned about growth,” said Quincy Krosby, the chief strategist at Prudential Financial.

The fall in demand for gas means that traders will take a close look at Thursday’s weekly report on first-time applications for unemployment benefits to see if companies are cutting back in other areas as well, Ms. Krosby said.

Stocks fell broadly, with energy and materials companies suffering the worst declines. The Dow Jones industrial average lost 130.33 points to close at 12,630.03. The Standard Poor’s 500-stock index fell 15 points, or 1.1 percent, to 1,342.08. The Nasdaq composite lost 26.83 points, or 0.9 percent, to 2,845.06.

The market’s losses accelerated shortly before noon. The dollar and government bond prices rose as traders moved money into safer assets. The dollar rose 0.8 percent against a group of other major currencies, and the euro dropped 1.5 percent against the dollar.

The yield on the 10-year Treasury note fell to 3.16 percent from 3.22 percent late Tuesday. Bond yields fall when their prices rise.

Energy stocks fell 3 percent, the most of any of the 10 industries in the S.P. 500 index. Cabot Oil Gas fell more than 5 percent.

Materials producers also struggled after metals prices sank. Freeport McMoRan Copper Gold, a miner, fell 5.6 percent. Copper fell 3.2 percent, and silver lost 7.7 percent. Silver fell sharply last week as part of a sell-off in commodities.

Commodities are still more expensive than they were a year ago. High oil prices helped push the nation’s trade deficit up 6 percent to $48.2 billion in March from February. American companies sold more automobiles and other goods and services to customers abroad, but it wasn’t enough to make up for an 18 percent rise in oil imports.

Strong earnings have been carrying the market higher since the beginning of 2011. On Tuesday the SP 500 climbed for the third straight day to within 0.5 percent of its highest close for the year.

“Every time that stocks start to go down a little bit, you’re seeing more selling pile on because people have made so much profit over the past 9 months,” said Uri Landesman, president of Platinum Partners, a New York-based hedge fund.

Walt Disney’s results late Tuesday fell short of expectations, and its stock fell 5.4 percent, the most of the 30 stocks that make up the Dow. The earthquake that struck Japan in March cut into revenues at its theme parks there, and its movie studio profits took a hit from the box-office bomb “Mars Needs Moms.”

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