http://www.telegraph.co.uk/finance/debt-crisis-live/9230373/Debt-crisis-live.html
A downgrade to Spain’s credit rating led to spreads widening from the open. But they recovered as the morning wore on, and the Markit iTraxx Europe is more or less flat on the day. S&P’s two notch downgrade to BBB+ was aggressive by its standards and they left the sovereign on negative outlook, suggesting further downgrades in the months ahead. But the decision didn’t enlighten the market – Spain’s problems are all too apparent. The sovereign’s spreads widened just 12bps to 480bps, still 40bps tighter than the record wides reached last week. Spain trades with an implied rating of BB, according to Markit data – an indication that the negative outlook will be borne out. Weak retail sales and unemployment number only served to highlight Spain’s plight.
I work in Spain at the moment, for a large international company, I can tell you first hand layoffs are on the increase and a sense of despair and paranoia is in the air...one thing not covered however in this is that the new changes in employment law (last month) have added substantially to the increase in redundancies, it's now cheaper and easier to fire people than ever before, the same day the new laws were passed, mass layoffs took place....
At the moment we don’t estimate it’s necessary.
It looks better than the market expected because there were quite a few negative comments coming after the Spanish downgrade.
The fiscal pact is negotiated, it was signed by 25 government leaders and has already been ratified by Portugal and Greece. Parliaments across Europe are on the verge of passing it. Ireland is having a referendum at the end of May. It is not open to new negotiations.
We could also consider a downgrade if political support for the current reform agenda were to wane. Moreover, we could lower the ratings if we see that Spain's external position worsens or its competitiveness does not continue to approach that of its trading partners, a key factor for Spain to return to sustainable economic and employment growth.
• We believe that the Kingdom of Spain's budget trajectory will likely deteriorate against a background of economic contraction in contrast with our previous projections.
11.05 The cost of insuring Spanish debt against default has ticked up 12 basis points this morning to 480bps. This means it now costs £480,000 a year to insure £10m of Spanish government debt over five years. More from Gavan Nolan at Markit:
A downgrade to Spain’s credit rating led to spreads widening from the open. But they recovered as the morning wore on, and the Markit iTraxx Europe is more or less flat on the day. S&P’s two notch downgrade to BBB+ was aggressive by its standards and they left the sovereign on negative outlook, suggesting further downgrades in the months ahead. But the decision didn’t enlighten the market – Spain’s problems are all too apparent. The sovereign’s spreads widened just 12bps to 480bps, still 40bps tighter than the record wides reached last week. Spain trades with an implied rating of BB, according to Markit data – an indication that the negative outlook will be borne out. Weak retail sales and unemployment number only served to highlight Spain’s plight.
10.54 Lots of comments on Spain this morning from analysts and readers alike. Reader Benjamin Hurley writes:
I work in Spain at the moment, for a large international company, I can tell you first hand layoffs are on the increase and a sense of despair and paranoia is in the air...one thing not covered however in this is that the new changes in employment law (last month) have added substantially to the increase in redundancies, it's now cheaper and easier to fire people than ever before, the same day the new laws were passed, mass layoffs took place....
The main problem I see here, is the complete lack of ingenuity and entrepreneurship. I worked in the US before i was hired here and the contrast in work ethic and motivation is stark. But that said the Spanish people are held back by government bureaucracy, I don't believe its something endemic to them, it's possibly the most expensive and complex place for a young person to start a business in Europe....
They need to leave the EU, lower taxes, cut the red tape and let the people, not the government sector drive the economy....
Violent protests have erupted in Spain over government austerity measures and changes to employment laws (Photo: Reuters)
10.48 Spain's banks could need more money, deputy economy ministerFernando Jimenez Latorre said on Friday, but it won't come in the form of a Brussels bailout.
Mr Latorre told reporters that any “possible” use of public funds for banks would be limited. He added:
At the moment we don’t estimate it’s necessary.
10.39 Commenting on the Italian bond auction, Achilleas Georgolopoulos at Lloyds, said:
It looks better than the market expected because there were quite a few negative comments coming after the Spanish downgrade.
The €5.9bn number is pleasing the market for now. Any number below five would have created a bit of a problem for them.
In this environment, domestic banks are probably supporting the auction and that has been a feature for Italy since the start of this year.
10.35 In two separate "off-the-run" auctions, Italy also sold €493m of four-year debt at average rates of 4.29pc, and €537m of 2019 bonds at average yields of 5.21pc. Demand here was stronger (the auctions attracted bid-to-cover ratios of 2.63 and 2.27 respectively).
10.20 Italy has paid higher rates to get two bond auctions away this morning.
The country sold €2.5bn of ten-year bonds at average yields of 5.84pc, compared with 5.24pc at the last auction in March. It also sold almost €2.5bn of five year debt at average rates of 4.86pc (vs. 4.18pc).
Demand also waned slightly. There were 1.48 bidders for every bond on offer at the 10-year auction (vs. 1.65), and 1.34 bidders per bond at the five-year auction (vs. 1.65).
The latest batch of retail PMI data for the Eurozone portrayed a worryingly steep downturn on the high street. Coming on the back of disappointing flash estimates for the manufacturing and service sectors, the retail data point to a deepening recession at the start of the second quarter. The April Retail PMI signalled the fastest fall in sales since the record contraction seen in late-2008.
10.15 Commenting on the data, Trevor Balchin, senior economist at Markit, said:
The latest batch of retail PMI data for the Eurozone portrayed a worryingly steep downturn on the high street. Coming on the back of disappointing flash estimates for the manufacturing and service sectors, the retail data point to a deepening recession at the start of the second quarter. The April Retail PMI signalled the fastest fall in sales since the record contraction seen in late-2008.
Ominously, German retail sales declined, abruptly ending a survey-record sequence of growth that stretched back to October 2010. French retail sales meanwhile fell at the fastest rate since the survey began, though this may have been influenced by the presidential elections. Italy remained the weakest link, however, as the rate of decline in sales reaccelerated to a near-record level.
10.11 The blue line says it all. Retail sales in Europe's three biggest economies (Germany, France and Italy) fell at their strongest pace since late-2008 in April, according to Markit's latest retail PMI survey. InFrance, sales fell to a record low.
Markit's eurozone Retail PMI plunged to 41.3 in April, from 49.1 in March. This is well below the 50 level that divides growth from contraction.
The blue line shows how retail sales have fallen in France, Germany and Italy (Source: Markit)
09.47 Meanwhile, German Chancellor Angela Merkel has insisted that the EU's fiscal compact, which enshrines tough budget rules in national law, is not open to negotiation. The Chancellor told Germany's Westdeutsche Allgemeine Zeitung:
The fiscal pact is negotiated, it was signed by 25 government leaders and has already been ratified by Portugal and Greece. Parliaments across Europe are on the verge of passing it. Ireland is having a referendum at the end of May. It is not open to new negotiations.
French presidential frontrunner Francois Hollande has said that if he is elected, he would seek to renegotiate the treaty. This could make a "Mellande" relationship much more fraught than the current "Merkozy" one with incumbent Nicolas Sarkozy.
09.20 Moving away from Spain, small and medium-sized businesses in the eurozone are still struggling to get bank loans, despite the European Cental Bank's €1 trillion cash injection into Europe's banking system in December and February.
A fifth of the 7,500 firms surveyed by the ECB said that they felt lending conditions had deteriorated. Smaller firms also said their applications for loans were being more regularly rejected.
08.58 Markit Economics illustrates how youth unemployment has more than doubled in Spain over the past five years.
...and how job cuts are hitting workers in both the public and private sectors:
08.46 It's becoming a dismal day for Spain. The INS also said that retail sales fell by 3.7pc on an annual basis in March. Sales have now fallen for 21 months in a row.
08.22 Spain's unemployment rate reached 24.44pc at the end of March (compared with 22.9pc in Q4 2011) - the highest level on modern record, according to data just released by Spain's statistics office.
More than 5.6m people in Spain are now out of work, according to theInstituto Nacional de Estadística's (INE) quarterly employment survey.
The data also highlighted major regional differences. The unemployment rate is now a staggering 33.17pc in Andalusia, compared with 13.55pc in the Basque Country.
07.52 The downgrade has pushed up Spain's borrowing costs this morning, as its debt is now deemed more risky by investors.
Yields on 10-year Spanish bonds have risen by 18 basis points to 5.989pc, according to Bloomberg data.
Yields on Portuguese bonds jumped almost 2pc in 24 hours when its credit rating was cut to "junk" in January, amid forced selling by funds not allowed to hold junk-grade bonds.
But this doesn't always happen. When S&P stripped America of its prized AAA rating last year, its borrowing costs actually fell as investors sought safety in US T-bills amid the turmoil in Greece. Investors also shrugged-off France's downgrade, which was largely priced in.
07.07 S&P also put Spain on "negative outlook". This means there is a one-in-three chance the ratings agency could cut Spain's credit rating again in the next two years.
Spain, like Italy, is currently three notches from being cut to "junk" - or below investment grade. S&P said it could cut Spain's rating further if government debt were to rise above 80pc between 2012 and 2014 (from a level of 68.5pc of GDP in 2011, according to Eurostat), or growth weakened. It added:
We could also consider a downgrade if political support for the current reform agenda were to wane. Moreover, we could lower the ratings if we see that Spain's external position worsens or its competitiveness does not continue to approach that of its trading partners, a key factor for Spain to return to sustainable economic and employment growth.
06.57 The pain in Spain continues. Late last night, Standard & Poor's (S&P) cut the country's credit rating by two notches to BBB+ from A on concerns over its debt.
S&P outlined Spain's woes in five bullet points:
• We believe that the Kingdom of Spain's budget trajectory will likely deteriorate against a background of economic contraction in contrast with our previous projections.
• At the same time, we see an increasing likelihood that Spain's government will need to provide further fiscal support to the banking sector.
• As a consequence, we believe there are heightened risks that Spain's net general government debt could rise further.
• We are therefore lowering our long- and short-term sovereign credit ratings on Spain to 'BBB+/A-2' from 'A/A-1'.
• The negative outlook on the long-term rating reflects our view of the significant risks to Spain's economic growth and budgetary performance, and the impact we believe this will likely have on the sovereign's creditworthiness.
The downgrade puts Spain in the same league as Ireland and Italy, as well as countries such as Kazakhstan and Colombia.
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