After the initial downward response in the S&P futures to the S&P downgrade of Italy, markets realized again that rating agencies follow the markets, never lead them. To put into context, Italy’s 5 yr CDS is at a record high again at 507 bps and S&P downgraded them to A, 3 notches above Moody’s and 2 above Fitch. Hungary’s 5 yr CDS is trading at 475 bps with a BBB- rating and S&P just upgraded Turkey to investment grade at BBB- and Turkey’s 5 yr CDS is at 258 bps. Spain sold 1 yr and 18 month debt at yields about 20 bps above those sold in Aug. Greece will have another call with the EU and IMF at 1pm est time and most signs still point to them buying more time (time is now in weeks, no longer months and years). Portuguese yields are rising to 2 month highs. European stocks got a lift at around 5am after Germany’s Sept ZEW investor confidence in their economy was a touch better than expected even though it fell to the lowest since Dec ’08. In Asia, Hong Kong’s unemployment rate in Aug fell to 3.2%, the lowest since 1998. The FOMC 2 day meeting begins today and as I’ve said repeatedly, incremental Fed action is now impotent and in fact damaging.
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