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Markets Bounce on Bank Downgrades ... What!
After the second sharpest drop of the year in equities that took place yesterday, equity markets made a rather surprising bounce today, with most major banks up rather well despite Moody's rather pessimistic stance on the credit quality of a number of major financial institutions. It is as if investors have flipped the bird on Moody's opinion on credit ratings.
As we all know, ratings agency Moody's downgraded 15 of the world's biggest banks as it felt that the current volatility in capital markets was increasing the risks that these institutions would face sharp losses. The news that Moody's was going to downgrade a number of banks leaked out yesterday before the close of trading. It is apparent that investors were expecting to see much lower downgrades than what actually took place. As a result, equities are up today with bank stocks representing the strongest industry group.
On the European front, Spain's equity markets traded higher as investors gained some confidence that the nation is still very capable of raising capital from credit markets despite its rather high cost of debt. Economy Minister Luis de Guindos said that on July 9 Spain and the rest of the European Union will reach agreement on the terms of the loan it will get for its banking system, particularly the interest rate. He estimated the rate would be around 3-4 percent. As a result Spain's 10-year yield dropped 23 basis points, to 6.38 percent, and for the week the yield fell 49 basis points, the biggest drop since the five days through Jan. 27. This boosted Spanish equities to finish the day up 1.52 percent as represented by Spain's IBEX index.
Here at home Gallup said that public opinion remains divided over "Obamacare." According to the organization the full impact of the Supreme Court's decision on public opinion will likely not be evident until weeks or months after it is handed down. To quote some of the conclusions from Gallup:
• Americans Are No More Likely to Support the Law Now Than When It Was Passed.
• Americans See Little Impact of Bill on Healthcare Now.
• Americans See Individual Mandate as Violation of Constitutional Liberties.
• Views of Healthcare Law Highly Polarized by Party.
• Americans Prefer a Private Health Insurance System.
The high court is expected to rule next week on the law Obama signed in 2010.
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