Spain’s sovereign credit rating has now been placed just above junk status by Standard & Poor’s. They cut Spain’s rating to BBB-minus and stated that the economy had a negative outlook. Contributing to the lowered rating was the lack of a bailout package. Moody’s Investors Service had also cut Spain’s rating earlier. This credit rating service will review Spain over the next few weeks and could drop the nation’s credit into junk status.
As a result, the euro dropped to its lowest level since October 1. It is currently trading at $1.2864 which is 0.1 percent higher than today’s earlier rate of $1.2825. Versus the yen, the Eurozone’s currency is down 0.2 percent. It is currently trading at 100.37 yen.
Asian Stocks Fall
Asian stocks, bonds and currency fell after announcements by the International Monetary Fund and the World Bank earlier in the week. Both banking systems warned that global growth for 2012 and 2013 would be slower than expected. Investors should also be wary of economic slowdowns in China. As the world second-largest economy and largest consumer of raw materials, decreased economic growth in China could severely impact the rest of the marketplace.
Aussie Reverses Course
After early losses, the Australian dollar managed to reverse its downward spiral. It reached a level of $1.0288 versus the United States. This marks the highest exchange rate for the Aussie since October 2. The growth was bolstered by rising employment in the country and a decreased unemployment rate. The country gained 14,500 jobs in September after the data was seasonally adjusted. Unemployment in Australia currently stands at 5.4 percent.
Although the Australian dollar has traditionally been viewed as a risk currency, it is gaining traction as a reserve currency. Financial problems in the United States and bailouts in Europe have left the Australian dollar as a stand-in alternative. It gained 0.3 percent against the yen to 80.12 during the day’s trading session. Meanwhile, the euro retreated 0.5 percent against the Australian dollar to A$1.2514. This is the lowest level for the euro/Aussie since October 2.
As the G& convenes, the ongoing debt crisis in Europe and budgetary issues in the United States are expected to be on the top of the agenda. Slowdown in Chinese growth is also expected to be a talking point for the meeting. Despite slowing economic growth, the Chinese yuan managed to hit an intraday high against the greenback of 6.2781. This is the highest level for the yuan since China began exchanging foreign currency in 1994.
German Bonds Advance
After Standard & Poor’s cut their rating for Spain’s sovereign debt, German bonds advanced. In face of the economic risks associated with a Spanish bailout, investors turned to the safety of the German bond. German ten-year bonds dropped five basis points to 1.44 percent. This is the lowest level for German bonds since October 4. Two-year German bonds also fell by two basis points to 0.03 percent. This marks a return of 3.1 percent since this time last time. Overall, Spanish securities also rose 1.6 percent.
Italy is planning on selling off bonds today. Scheduled to become due in 2015, these bonds are expected to total 3.75 billion euros. The nation also plans on selling off 2.25 billion euros in bonds that mature in 2016, 2018 and 2025. In Italy, the last selloff of bonds occurred on September 13. These bonds yielded an average of 2.75 percent. Investors also bid a total of 1.49 times for the amount of securities planned.
Rand Holds Steady
During trading on Wednesday, the South African rand managed to hold steady. As investors switched their focus from Asia to Europe, South Africa managed to stay at relatively neutral levels. In the morning on Wednesday, the rand was bid at R8.7308. On Monday, it reached its lowest level for this week so far at R8.9945.
Versus the euro, South Africa’s currency is currently at R11.2225 which is slightly higher than its previous close of R11.2243. Against the United Kingdom’s sterling, the rand is at R13.9759. One official in South Africa noted that Spain’s credit rating is now two notches below South Africa’s rating. This change reflects the ongoing issues in Spain and the better investment possibilities in South Africa.
Korean Rate Cut
The Bank of Korea decided on Thursday to cut the benchmark interest rate for the nation by 25 basis points. It will now be at 2.75 percent from its previous level of 3.00 percent. Many market analysts expected the rate cut despite the growth of inflation in the nation. In August, inflation was at 1.2 percent. By September, it grew to 2.0 percent. The bank decided to make this move due to slow growth in emerging market countries. This downturn was caused by economic issues in the world’s advanced economies.
Producer prices in South Korea crew 0.7 percent for September which is roughly the same as August’s reading. Core CPI also gained and is presently at 1.4 percent. Over the last month, it rose 0.1 percent. This marks a lower gain than the 0.2 percent increase it boasted of in August.
Some of the economic data coming out of South Korea indicates that the country is about to face a downturn in exports. Many of the world’s leading importers have dealt with harsh economic realities in the last few months. As a net exporter, South Korea’s economy is reliant on the world’s demand for their goods. Whenever the globe faces an economic downturn, South Korea’s central bank has acted to reduce the slowdown’s impact on South Korea. The last time it lowered the interest rate was three months ago. After 12 consecutive months of maintaining the interest rate, South Korea had surprised investors by dropping the rate by 25 basis points.