New fears of additional downgrades of Greek debt hit the markets today, which cause elevated volatility and whipsaw movements throughout the trading day. The S&P 500 Index finished the day down 2 points to 1103, after being down as many as 19 points to 1086at the low of the trading session.
The euro has come under renewed pressure following a warning from Moody’s that it may lower its credit rating on Greece within a month if the Greek government misses its March fiscal targets. Moody’s credit rating, at A2, is already two notches below that of S&P (currently BBB+) which warned yesterday of a potential Greek downgrade within the month. A Moody’s downgrade would put the credit rating at the lowest investment grade before speculative grade. That would in turn make the Greek refinancing process more difficult and reinforce concerns about a downward spiral in which concerns about Greek government debt impacts holders of the debt with repercussions being felt in the economy making the crisis worse. The Euro bounced back at the end of the trading session after testing recent lows at 1.3450.
In the US, Durable goods jumped more than expected in January (up 3.0% m/m vs. 1.5% expected) but details raise concerns that Q1 GDP could be revised lower. Shipments of non-defense capital goods ex-aircraft and used in the calculation of GDP, fell -1.5% in January after gaining 2.4% in December. Due to the volatile nature of the durable goods report, forecasters are likely to wait for further confirmation to lower forecasts. Note that the headline numbers jumped due to an unexpected jump in private sector aircraft orders (up 126%), a surprise after Boeing reported orders fell sharply in January and underscoring the volatile nature of the data. Orders expected transport fell for the first month in three, down -0.6% vs. +1.0% expected. That said, the decline comes off a higher December base after the December data were revised to up 2.0% from up 0.9% and leaving non-transport orders at a slightly higher level than forecasters had expected. Weekly jobless claims were also disappointing adding to the view that the outlook remains uncertain. Claims jumped unexpectedly to 496K (460K expected and vs. 474K in the prior week). The Labor Dept said the jump was due in part to a backlog of claims in the Mid-Atlantic States and New England following the recent storms. Including this latest data, that puts the four week average at 473K, still an improvement over the 513K averaged before the start of the holiday period in late November.