When Rating Downgrades Don't Matter - Analyst Blog
February 14 2012 - 3:24AM
Zacks
Moody’s (MCO) downgrade appears to have had
little impact on Italy’s borrowing costs, as the country held a
successful bond auction today where yields fell. Spain also
suffered a downgrade from Moody’s and experienced a similar rate
contraction. This appears to be becoming a trend now, with the bond
market paying little attention to sovereign ratings downgrades.
We saw that with the Standard & Poor’s downgrade of the U.S.
rating last summer and a number of European credits a month back.
The same trend seems to be playing out with Moody’s downgrades now.
The recent non-effectiveness of sovereign credit ratings aside,
there is no denying the fact that sovereign balance sheets are out
of shape, particularly in Europe.
Europe aside, the major news of the day pertains to the mixed
Retail Sales numbers for January on the home front, with the
‘headline’ number coming weaker than expected, but the ‘core’
number better than expected. Retail Sales came in weaker than
expected on the headline basis, up 0.4% compared to expectations of
0.7% gains. This compares to the ‘unchanged’ December reading,
which was revised downwards from the originally reported 0.1%
gain.
'Core' Retail Sales, which exclude automobile and gasoline sales
data, came in better than expected, up 0.7% compared to
expectations of a 0.6% gain. The ‘core’ reading for December was
also revised downwards.
The weak ‘headline’ Retail Sales reading runs counter to
positive reports of auto sales and other indicators from the
broader economy. Measures of consumer confidence have been moving
up and the labor market has been steadily moving in the right
direction.
The Retail Sales report is admittedly not a perfect proxy for
consumer spending since it only includes 'goods' sales at retail
establishments and leaves out the much bigger consumer outlays on
'services.' But it nevertheless provides valuable clues to trend in
consumer spending, which is the backbone of the U.S. economy. The
downward revision to the December ‘core’ Retail Sales numbers could
be pointing towards a downward adjustment to the fourth quarter GDP
numbers coming out later this month.
On the earnings front, we got weaker-than-expected results from
Avon Products (AVP), with a number of unusual
items in the company’s report. The company is currently in the
process of hiring a CEO to replace Andrea Jung, who will remain the
company’s chairman. Goodyear Tire & Rubber
(GT) missed both EPS and revenue expectations, though results were
a significant improvement from the year-earlier quarter.
AVON PRODS INC (AVP): Free Stock Analysis Report
GOODYEAR TIRE (GT): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
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