News for 7/29/2011
“Rating agency Moody’s on Friday placed Spain on review for a possible downgrade, citing weak growth and funding pressures, hitting the euro on concerns a Greek rescue package has not laid contagion fears to rest.
Moody’s placed Spain’s Aa2 government bond ratings on review for possible downgrade and said funding costs would remain high for the Spanish government in the wake of the Greek package which signalled a clear shift in risk for bondholders.”
…………..1B) Moody’s creates more trouble for Spain
“Moody’s Investors Service downgraded six regions of Spain on Friday, and warned that other regions could also face a downgrade.”
“The yield on Spain’s 10-year bonds rose nine basis points to 6.103% according to Tradeweb. The cost of Spanish sovereign credit default swaps, which would compensate buyers in the event of a default, also rose.
Italian bonds were also weaker in early trading, with 10-year yields rising five basis points to 5.87%.”
“Greek bondholders may resist pressure to reinvest in the nation’s securities as part of a bailout agreement as potential losses exceed the 21 percent estimated by the Institute of International Finance.
JPMorgan Chase & Co. calculates the bonds may lose as much as 34 percent of their value, while Rabobank International anticipates losses of as much as 50 percent. That may be high enough to deter money managers from aiding the rescue, leaving European leaders to either foot a bigger share of the bill or compel private investors to chip in to meet a 90 percent participation goal.
“Our view is that IIF yield assumption in calculating this is too low,” said Pavan Wadhwa, JPMorgan’s global head of interest-rate strategy in London. “As the market stands right now, the haircut banks will take if they sign up to the IIF proposal would be much higher than 21 percent. ”
“Demand for physical gold in China may exceed consumption in India by the end of this year, said Chuck Jeannes, chief executive officer of Goldcorp Inc. (G), the world’s No. 2 producer of the metal by market value.
“Three or four years ago there was no one who would have expected Chinese physical demand for gold to surpass India,” Jeannes said yesterday in a telephone interview from New York. “Now it looks like that could happen as early as the end of this year. And that’s while Indian demand is increasing.”
While global demand for gold is advancing on concerns about financial turmoil in the U.S. and some European countries, consumers in China are buying larger amounts of the metal as an inflation hedge, Jeannes said. ”
“The U.S. is approaching the moment it may have to decide which bills to pay, a prospect Treasury Secretary Timothy F. Geithner has called “unacceptably risky and unfair” to Americans.
The Obama administration will brief the public no earlier than when financial markets close today about priorities for paying the nation’s obligations if the U.S. debt limit isn’t raised by then, a Democratic official said. ”
“The US economy grew at an annualised rate of 1.3% in the second quarter, much slower than had been expected.
The Commerce Department also revised down the rate for the January-to-March quarter, from 1.9% to just 0.4%.
On Thursday, a key vote in Congress on a Republican bill to raise the US debt limit was delayed.
If Congress does not raise the debt limit by 2 August the US government could face funding shortfalls that it cannot meet by extra borrowing.”
…………………5A) U.S. GDP Grows Just 1.3%
“The U.S. economy expanded at a slower pace than expected in the spring as consumers cut back on spending, while revisions showed the slowdown since the beginning of the year was much more drastic than previously thought.
The Commerce Department Friday said gross domestic product rose at an annualized seasonally adjusted rate of 1.3% in April through June, while first-quarter growth was revised down sharply to a 0.4% rate from the earlier estimate of a 1.9% gain.”
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