Benzinga Market Roundup: Volatile Day, Spain Downgraded
Just before the market closed, ratings agency Egan-Jones cut Spain's credit rating to CCC+ from B. The ratings change was Egan-Jones' fourth cut of Spain's credit rating in the past six weeks. Risk assets moved lower on the news.
A great deal of uncertainty may remain in regards to Spain. The IMF is not involved in the Spanish bailout, nor is the ECB. This leaves just the EFSF/ESM conduit to bail out Spain. However, the ESM does not currently exist, as only three of the seventeen member nations have approved it. Also, Spain and Italy make up approximately 30% of the ESM's funding, raising the absurd possibility that Spain may be expected to bail itself out. Lastly, Germany hasn't even approved the ESM and German politicians are skeptical that they can approve the ESM before July 1.
Those are just some of the problems with the Spanish bailout. However, investors spent most of the day with European issues largely on the back burner, as JP Morgan Chase's (NYSE: JPM) CEO Jamie Dimon testified on Capital Hill and defended the bank.
A look at where the market closed:
- The S&P 500 closed about 0.8% down after opening lower, rallying into the afternoon, and selling off late in the day.
- The 10-year Treasury Bond yield fell 6.6 bps to 1.598%.
- Spanish 10-year yields closed higher by 3.6 bps at 6.688% and Italian 10-year yields closed higher by 4.7 bps at 6.188%.
- Gold rallied 0.5% to $1617 as silver traded lower by 0.44%.
- The EUR/USD cross traded higher on the day, buoyed by hopes that the Spanish bailout will work, to close at 1.2573.
- The Dollar Index closed off its lows to finish the day just below 82.14.
Overall, it was a slower trading day and the full impact of the most recent Spanish downgrade may not be felt until Europe wakes up tomorrow. The iShares MSCI Spain Index (NYSE: EWP) barely budged on the news, perhaps suggesting that further downgrades were already priced in.
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