Forex Fundamental Analysis
The ratings agency Standards and Poor’s has reduced its rating of the credit worthiness of US bonds by one notch from the highest AAA rating to AA+. The move is deeply symbolic meaning that the agency is no longer confident that investors in US government bonds will not get their fingers burnt.
The spread between Italian and German bond yields grew last week to its widest in 15 years. Pressure is on for the EMU in the week ahead, as it is shaping up to be a make-or-break time across financial markets.
All of the world’s major indices closed sharply lower last week due to the sovereign debt crisis in Europe and the USA. In Europe over the course of the week, the FTSE shed 9.8% and closed at 5247; the Dax fell by 13% to close at 6236.16%; the CAC weakened by 10.7% to end the session at 3278.56.
Japan has suffered from a major natural disaster which left well over 20000 dead or missing and caused massive destruction to areas in the north east coastal region.
Italy seems set to follow in the footsteps of Greece, Ireland and Portugal as investor doubts on her ability to manage her debts send the yield on bonds to record highs.
Data which emerges for the annualised gross domestic product (GDP) of a nation shortly after the quarter to which it pertains is invariably provisional.
Over the course of the weekend, leaders from the ruling Democratic party and the opposition Republicans came up with a compromise which will allow the US government to increase its borrowing ceiling and avoid running out of money. It was inevitable
We remain bearish on the US Dollar and bullish on the Euro, and we've taken a look at all the major currencies for the week ahead. Take a quick look at USD, EUR, GBP, JPY and more here.
As we have pointed out before, the question of sovereign debt is a subjective thing. It is not the absolute level of debt that a country has that dictates the interest rates that they must offer to raise money through the bond market, but the market’s confidence that a country will be able to honour its obligations.
Cyprus was relatively well placed, in debt terms, when the global financial crisis struck since it had had to adopt austerity measures in order to meet the convergence criteria for joining the Euro. The current level of deficit stands at about 5.7% with public debt at 61.1%, so compared to other nations on the Eurozone periphery, it is still well-placed.
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