Tuesday, June 26, 2012


Macro: seeing more negative news flow again. 1) In Europe, Moody’s downgraded 28 Spanish banks, citing the country’s sovereign debt and rising losses on real estate loans. The ratio of bad loans to total lending at Spain’s banks surged to 8.72% in Apr, the highest since 1994, from < 1% in 2007. Moody’s cuts the lenders’ long-term debt and deposit ratings by 1 - 4 levels. This follows Moody’s downgrade of 16 Spanish banks on May 17, as well as Moody’s downgrade of 15 global banks last week, saying their capital-markets businesses suffered from volatility and the potential for “outsized losses”. 2) Commodities saw the biggest outflows (US$8.2b) in 8 mths in May amid mounting global-growth concerns, while total commodity assets under mgt fell by US$35b to US$394b, the lowest since Jan ’11, according to Barclays, which likened the retreat to “something approaching a stampede”. The S&P’s GSCI Spot Index of 24 commodities has tumbled 18% since 30 Mar 30, heading for the biggest quarterly decline since 2008, as Europe’s fiscal crisis escalates. 3) Credit swaps in US jump most this month before the Europe summit this wk. The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, increased 4.3 bps to a mid-price of 119.7 bps. Fitch notes the funding environment for the weakest companies in the high-yield universe remains challenging; notes the trailing 12-mth US default rate on high-yield bonds rose to 2.2% in May, passing 2% for the first time since Oct ’10, with defaults in May affecting a combined US$3.9b of bonds. 4) Paul Krugman and Noriel Roubini amongst a growing chorus of economists citing similarities of the present environment to the economic catastrophe of 1931.

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