Ratings Agencies Turning Up the Heat on Euro Zone Leaders
It seems the world has already grown tired of the continuous stream of negative macroeconomic news, although the real troubles are only just beginning. Moody's is again acting as the instigator, downgrading Ireland's credit rating from medium-grade Baa3 to junk status Ba1, which seems to have destroyed the remaining hope that Europe will manage to avoid a default on its peripheral countries' debts.
Deep Trust Trading analysts believe that the ratings agency is putting pressure on European leaders so that they will issue another tranche of financial aid to one of the five "problem countries," although European regulators are saying that these downgrades are having an incendiary effect. Meanwhile, the world is anxiously expecting a decision on a new issuance of American treasury bonds.
Yesterday, the Euro rose from its three-month low to $1.4050 while the US trade deficit reached a record high not seen since October 2008. The deficit exceeded even the most pessimistic predictions and reached $52.23 billion versus the $44.5 billion rate which analysts had predicted. The US's deficit with its main trading partner, China, grew 15.6% to $24.96 billion in May. Overall imports of crude oil were $29.92 billion, up from $26.03 billion in April. The numbers speak for themselves - the stream of negative information coming from the US (first on unemployment, now on the trade balance) ahead of the publication of second quarter corporate reports is being amplified by all the commotion and gossip regarding the Euro zone's troubles.
This kind of environment should be stimulating an increase in risk aversion and purchases of safe-haven assets like the Swiss franc, Japanese yen, gold, and of course, the dollar as a reserve currency. The Euro reached a record high against the franc of 1.1600 and Deep Trust Trading analysts are certain that this will not be the last record set, as one more asset is poised to hit another record high. Gold, which reached a recent record high at $1573.95 per troy ounce, seems intent on hitting $1600.
US government debt is currently at $14.294 trillion, despite attempts from the US Congress and the Obama administration to come to an agreement to raise the debt ceiling over the past two weeks. Some are saying that the continuous anxieties regarding Europe are spurring demand for American debt, and the US government may issue more of bonds if there is another negative signal from Europe. The US Congress would at the same time approve a $2.5 trillion increase in the country's debt limit.
On the other hand, some are saying that the debt crisis may be favorable not only for the US, but for Europe itself, whose control mechanisms and stability are suffering yet another breakdown. However, there may be slight positives in such a situation, for example making it possible to increase and strengthen fiscal integration mechanisms. If the role of the EU's regulatory authorities is increased and they are provided with more supervisory rights, the EU has a chance to become a more competitive and economically viable political structure in the ever-changing environment of world politics and economics. Finally, along with a drop in the Euro, European exporters would gain an advantage on world markets and over American competitors.
Deep Trust Trading Analytical Department
Deep Trust Trading analysts believe that the ratings agency is putting pressure on European leaders so that they will issue another tranche of financial aid to one of the five "problem countries," although European regulators are saying that these downgrades are having an incendiary effect. Meanwhile, the world is anxiously expecting a decision on a new issuance of American treasury bonds.
Yesterday, the Euro rose from its three-month low to $1.4050 while the US trade deficit reached a record high not seen since October 2008. The deficit exceeded even the most pessimistic predictions and reached $52.23 billion versus the $44.5 billion rate which analysts had predicted. The US's deficit with its main trading partner, China, grew 15.6% to $24.96 billion in May. Overall imports of crude oil were $29.92 billion, up from $26.03 billion in April. The numbers speak for themselves - the stream of negative information coming from the US (first on unemployment, now on the trade balance) ahead of the publication of second quarter corporate reports is being amplified by all the commotion and gossip regarding the Euro zone's troubles.
This kind of environment should be stimulating an increase in risk aversion and purchases of safe-haven assets like the Swiss franc, Japanese yen, gold, and of course, the dollar as a reserve currency. The Euro reached a record high against the franc of 1.1600 and Deep Trust Trading analysts are certain that this will not be the last record set, as one more asset is poised to hit another record high. Gold, which reached a recent record high at $1573.95 per troy ounce, seems intent on hitting $1600.
US government debt is currently at $14.294 trillion, despite attempts from the US Congress and the Obama administration to come to an agreement to raise the debt ceiling over the past two weeks. Some are saying that the continuous anxieties regarding Europe are spurring demand for American debt, and the US government may issue more of bonds if there is another negative signal from Europe. The US Congress would at the same time approve a $2.5 trillion increase in the country's debt limit.
On the other hand, some are saying that the debt crisis may be favorable not only for the US, but for Europe itself, whose control mechanisms and stability are suffering yet another breakdown. However, there may be slight positives in such a situation, for example making it possible to increase and strengthen fiscal integration mechanisms. If the role of the EU's regulatory authorities is increased and they are provided with more supervisory rights, the EU has a chance to become a more competitive and economically viable political structure in the ever-changing environment of world politics and economics. Finally, along with a drop in the Euro, European exporters would gain an advantage on world markets and over American competitors.
Deep Trust Trading Analytical Department
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