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Markets higher despite Spanish downgrade

Economic data from Spain today came in even worse than pessimistic forecasts, with the unemployment rate coming in at 24.4%, and retail sales falling 3.7% over the year, weaker than the -3.2% that was anticipated. The news was accompanied by a downgrade of the country’s sovereign credit rating by S&P from A to BBB+ (a two notch downgrade), with the agency citing a worse than expected deterioration in the region’s finances and a growing probability that the government will have to provide additional support to the banking sector.

There was also some disappointment from the US where the Bureau of Economic Analysis reported that GDP grew at 2.2% in the first three months of 2012 (on an annual basis).The figure was below forecasts of a 2.5% increase, and below the 3% reading in the last quarter of 2011. A higher than expected rise in the Michigan Consumer Sentiment index, to 76.4 from 75.7, did appear to limit selling, with the reaction in financial markets muted.

Despite the economic negatives from Europe and the US, Italy completed what has largely been regarded as a successful bond auction today, selling €5.95 billion of government 10 and 5 year debt. Despite paying more for the borrowing, a 5.84% yield on the ten year and 4.86% on the five year, demand was sufficient to temper concerns surrounding the Eurozone periphery.

Global stock market indices generally finished the day higher, with the CAC and DAX up around 1% and the Spanish IBEX surprisingly 1.7% higher, a traditionally uncharacteristic performance given the country’s downgrade. Shares in the US were up marginally, the Nasdaq the best performer with a 0.43% gain following the strong performance of one of its constituents, Amazon. The online retailer rose 14% following a surprise increase in quarterly revenues and gross margins that initiated a number of price target increases from analysts. The FTSE 100 finished up 0.5% (20.4 points) at 5777.

This was posted in Bdaily's Members' News section by James .