Spain and Australia Weigh On Markets

Futures at lows for the morning, again on European and global growth concerns.


Spain's funding costs rise: Spain, which had expected to sell between 2.5 billion to 3.5 billion ($3.3 billion to $4.6 billion) euros at an auction, managed to sell only 2.6 billion ($3.4 billion). Of greater concern is that funding costs ROSE since the last auction a few weeks ago: 2015 debt at a yield of 2.89 percent (from 2.44 percent); 2016 debt at 4.31 percent (from 3.375 percent); and 2020 debt at 5.338 percent.

This is not surprising: all indications are that the Spanish economy will contract further in 2012, especially in light of the 27 billion euro ($35 billion) deficit-reduction package the government has just unveiled.

The European Central Bank held rates steady at 1 percent, as expected. With southern Europe facing continued pressure to continue austerity, making it difficult to achieve growth targets and to implement much-needed labor reforms, now is not the time to be signaling a rate increase.

A bridge for Portugal: European Economic and Monetary Affairs Commissioner Olli Rehn said it would be "wise to be prepared that some kind of bridge needs to be built when Portugal returns to the market" sometime next year.

What kind of bridge? He didn't say, but he didn't have to. Greece was bailed out twice and ultimately had to restructure its debt. That is the current speculation about where Portugal is headed.

Even the Asian news is not good: Australia unexpectedly reported soft export figures (its second consecutive monthly trade deficit), raising concerns that economic activity is indeed slowing in Asia. The Aussie dollar is at two-month low; Chinese markets are closed for a holiday.


1) Much ado about nothing: Moody's downgrade of General Electric's (GE, formerly CNBC's parent company) credit rating, driven by a downgrade of GE Capital, sounds serious, but read the statement carefully: "The downgrades result from the implementation of Moody's revised global rating methodology for finance companies..."

In other words, Moody's changed its methodology, something GE was quick to point out. This sounds like a generalized concern about risks that all financial institutions are facing. Moody's made it clear that the downgrade of GE itself was due solely to the risks from GE Capital "rather than any deemed incremental risk related to GE's industrial business lines."

And what about GE Capital? Moody's says it is "one of the strongest financial companies in the world."

Hmm. This is unlikely to dramatically affect GE's funding costs, and it seems unlikely that it will prompt the Federal Reserve from preventing GE Capital from paying a dividend once again, likely in the second half of the year.

2) Monsanto shares rise 1.6 percent pre-open after the global agribusiness company posted a better-than-expected second-quarter profit and boosted its full-year outlook on a 15 percent sales jump due to a strong selling season in the U.S. and continued growth in Latin America. The world’s largest seed company booked second-quarter earnings per share of $2.28, above the Street’s $2.12 estimate. Monsanto raised its 2012 earnings outlook to between $3.49 and $3.54 a share, bracketing analysts’ expectation of $3.51 a share.

3) SanDisk slides 7.7 percent pre-market after the chip maker downwardly revised first-quarter guidance due to weak demand from mobile phone manufacturers and excess supply that has led to lower prices, which hurt SanDisk's revenue and margins. The company now expects first-quarter revenue of about $1.2 billion, even lower than the $1.3 billion to $1.35 billion range it provided in January. The Street has forecast revenue of $1.34 billion for the first quarter.

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