Monday morning was shaping up to become a heck of a hectic day in US markets following overnight routs in European and Asian equity markets. Losses ranging from 1.7% (the FTSE) to 3.8% (Seoul) were recorded in overseas trading action following Friday night’s S&P downgrade of the US’ credit rating. A wide range of base metals took hits of various sizes as players view the rating event as only possibly adding to the risk of a global-in-scope slowdown.
Crude oil suffered a crude fate as well, shedding more than 3% in early action this morning (it fell to $83.50 per barrel). Gold and silver bucked the trend of course as safe-haven seekers kept bidding them higher despite the former reaching above the $1,700 level for the first time. Dow futures appeared to indicate a poor session in the making for this second Monday of August. Other markets appeared rife for additional intervention (Swiss franc, Japanese yen) as gains due to the aforementioned quest for shelter from the credit storm is pushing them to levels that are deemed as disconnected from fundamentals.
Spot metals dealings started what could be a tumultuous session with (mostly) gains this morning. Gold commenced trading just above the $1,700 round figure (at $1,702.20 the ounce) showing a gain of $38.80 versus its Friday afternoon closing value. Silver added $1.40 to rise to $39.72 per ounce while platinum was ahead by $7 at $1723.00 per ounce on the bid-side. Palladium went in the other direction however; it lost $9.00 per ounce to ease to the $733.00 mark. Rhodium remained bid at $1,935.00 at last check, showing no change.
Heard the one about how the S&P downgrade of US debt will cause a total collapse in the US dollar and a massive disposal of US Treasury holdings by China and other similar buyers? Yeah, so did we. Did not happen. As Monday’s markets were set to open, the greenback was trading…higher on the index (0.26 higher at last check, at 74.66) while officials from certain Asian countries (S. Korea, Japan) reiterated their plans to…keep buying US paper. Oops. Asia accounts for roughly half of US debt holdings globally. Even “vocal” Russia (whose leader, Mr. Putin, called the US a “parasite”) plans to continue to buy US debt as it does not see the downgrade as impactful for the long-term investor.
Heard the one about S&P saying that what it did late on Friday “should not come as a shock?” Yeah, neither did we. The “shock” did come, and then some. The men (Messrs. Chambers & Beers) who cried “AAAooowwww!” the other day are now seen by many (including Warren Buffett and BlackRock Inc.-the world’s largest money manager) as having made a political (in lieu of a credit) decision that smells like pure black tea (party). Mr. Buffett not only said that the US is still AAA-rated in his ‘book’ but that it actually should be AAAA-rated. If anything – said Mr. B – the event changes his mind about…S&P.
Memo from President Obama to the G.O. [Tea].P.: “Thank you very much; you have managed to bring about the same results [or worse], than an actual default would have. I should have stuck with another course of action.” Would-be President-ess, Ms. Bachmann actually blared: “IT happened on YOUR watch, Mr. President.” No, Michelle; it was your “teammates” that caused this mess to take place.
Reactions? Plenty to choose from: French Finance Minister François Baroin questioned the S&P’s rating move on Saturday, noting that neither Moody’s nor Fitch, the two other major ratings agencies, had reached a similar “conclusion.” NY Times columnist Paul Krugman remarked that “these are the last people whose judgment we should trust.” US Treasury Secretary Tim Geithner also had some harsh words for the rating agency’s decision, saying that the move showed "terrible judgment" and "a stunning lack of knowledge" of U.S. budget policy. S&P’s “action” may end up hurting the US (and global) economy and comes at a time when neither can easily afford it.