Spain’s Rating Sees Another Cut: Will Euro Collapse?
18 June 06:57 AM
Earlier this month, Мoody’s Investors Service downgraded Spain ’s credit rating by 3 levels at a time (form «A3» down to «Baa3») with a negative forecast. Some experts say this is the first one in the series of summer cuts.
So, what problems does Spain have and how do they affect the eurozone?
Spanish Rating Cut: Steady Trend Or Misconception?
According to Eugene Olkhovsky, Masterforex-V Academy’s leading expert in financial markets from Canada, the rating agency’s official website says that there are only 2 reasons for the decline:
·The Spanish authorities asked European financial institutions for financial support. The amount is 100 bn euro. This will only increase the country’s public debt and escalate the risks for the Spanish economy and the Euro currency in general.
·Spain ’s access to financial markets is restrained. In the long run, this may cause debt refinancing problems.
Obviously, when a country’s credit rating is cut by 3 level at a time, this cannot be caused by some minor or temporary issues. One thing is sure: the Spanish economy experience major problems. The crisis phenomena are of systemic nature. The reasons for such thoughts are the following:
Spain ’s rating has already been cut for a couple of times. In early June, Fitch also downgraded the country’s rating by 3 levels at a time - form "A" down to "BBB". Мoody’s Investors Service cut Spain ’s rating in February. In April, S&P cut the rating 2 steps down – from "A" down to "BBB+", with a negative forecast again.
Budget deficit. As of mid May, Spain ’s budget deficit was estimated at 8.9%.
Lower GDP. In Q1 2012, Spain ’s GDP shrank by 0.3% (q/q) and 0.4% (y/y). The pace of the economic slowdown has been growing for the 2nd consecutive quarter, which suggests a recession.
Flight of capital. In Q1 2012, the flight of capital was estimated at 97 bn euro.
Some other factors include, unemployment growth, tougher taxation, higher public and private debts.
Latest Rating Cut: Reasons
The major reason for June’s rating cut is the Spanish banking sector, which is currently suffering from multiple problems. In mid May, Мoody’s Investors Service downgraded the ratings of 16 Spanish banks, including Santander and BBVA.
Moody’s and the Spanish government see the problem at different angles. The rating agency assumes that the quality of the assets owned by Spanish banks is declining. Yet, this process is hard to stop. At the same time, the Spanish authorities say there are no reasons to panic and ask for external financial support. They say that Spanish banks have problems because they cannot get access to European financial markets while US markets are closed for European banks at all.
Previously, the Spanish authorities needed no external financial support, thus telling everyone about the insignificance of their problems. However, later, they changed their minds and asked Europe for help. Obviously, such a behavior caused panic among investors and affected the country’s credit rating.
Europe seems to be willing to save Spain as this time the Euro currency is threatened. Experts say Spain needs urgent recapitalization of its banking system.
How much does Spain need and how much will it receive? According to the analytic team of NordFX, Spain needs 60 bn euro or 6% of its GDP. If the situation deteriorates any further, the amount may increase up to 100 bn euro. Last Saturday, the Euro Group reported about its decision to provide Spain with 100b euro (taken from the EFSF). There is still no official detailed info about the loan.
How will Spain spend the money? According to the Spanish authorities, the entire loan will be spent to recapitalize Spanish banks: the banks will receive easy loans.
Spain is the 4th European country that asked for external financial support.
The current credit ratings of EU countries look as follows:
The EURUSD futures contract initiated a rally from 1.2544, however, the rally wasn’t’ supported by trading volume, which suggests high probability of a retracement. 1.2625 looks interesting. If the price consolidates above the level, it may well resume the rally, thus encountering resistance at 1.2661, a major volume cluster. If there is a downswing, 1.2613 will turn into the closest level of support.
Trading is risky at this point as the transition to the September contract is near.
Market Leader and Masterforex-V Academy would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
In your opinion, will other eurozone members follow Spain , Greece and other peripheral countries?
The world of Forex is getting more competitive and sophisticated. Broking companies have to offer their clients beneficial trading conditions to stay competitive. Big-scale old broking companies seem to have a slight competitive edge over young ones since they have decent experience and know how to arrange mutually beneficial cooperation.
HY Markets is one of such companies. It has been in the industry for over 3 decades! Even though this is an institutional broker, not so long ago it introduced beneficial conditions for beginning traders in order to get them up and running.
The new budget seems to have caused a major decline in the Australian consumer sentiment despite the RBA’s decision to cut the interest rate down to the record low level. The corresponding index calculated by Westpack confirms that.
Yesterday, on May 22nd, Ben Bernanke held a speech in the US Congress. This time, the Congress considered the possibility of curtailing the existing QE program prematurely because the programs seemed to have given positive results.
These days, anyone can make money trading Forex and other financial markets. The opportunities are almost endless. Still most traders still lose in the long run. While some lack experience and skills, others fall prey to emotions or fail to stick to sound money management. There are many reasons for losses. Few people actually make money in the long run because they treat trading seriously like a full-time job and work hard to achieve their goals. They use technical and fundamental analyses and strictly observe money management rules. They use various tricks and techniques to put the odds in their favor.
Apparently, beginners have difficulty trading financial markets without knowledge, skills and experience. Becoming a professional trader requires diligence, patience and time.
However, today’s Forex industry offers riskless moneymaking opportunities, which require no trading skills. You can make money without trading Forex. One of such opportunities is offered by FBS, a major Forex broker. The broker claims to offer “The most profitable and efficient IB Program on Forex”…
Yesterday, on May 21st, was a notable day for the eurozone. The Euro Parliament approved the Euro Group’s idea to use major deposits over €100 000 in emergency situations to save a risky bank. Deposits under €100 000 are ensured by the compensation scheme.
Most beginning traders are sure that it is possible to trade Forex profitably and easily. They usually assume that perfunctory knowledge is enough to make money in financial markets in general and Forex in particular. Alas, they are wrong. Obviously, it is possible to trade Forex profitable. However, it cannot be done without specific knowledge, skills and experience.
This delusion is the main reason why they lose in the long run. As a result, most of those losing beginners get disappointed at Forex and abandon the idea of becoming a winning trader forever. Some of them even start call it a scam or fraud. Some of them put the blame on brokers while others refer to bad luck.
Essentially, Forex has nothing to do with scams. Apparently, you may come across some dirty broking companies but that has nothing to do with Forex itself. Besides, such scammers can easily be avoided by following a few simple rules. However, this is another story (Masterforex-V Academy told us many times how to choose a reliable broker).