US : Under the downgrade shadow

Extrait de: Outlook negative: Chance of S&P U.S. downgrade rattles markets, Jonathan Ratner, Financial Post,  Apr 18, 2011

Standard & Poor’s surprised the market with a downward revision of its long-term rating outlook on U.S. government debt. Investors responded promptly by selling stocks and sending bond yields on a rollercoaster ride, demonstrating that they are paying closer attention to the deadlock in Washington.

Analysts warned the downgrade could lead to a weaker U.S. dollar, equity volatility and higher bond yields as the drama plays out. Indeed, with Europe also struggling through its own debt issues, it is another sign that further gains are going to be harder to come by.

“Clearly this was a signal S&P wants something done prior to the next presidential election,” said Mark Chandler, head of fixed income and currency research at RBC Capital Markets. “It’s not good enough just to buy time until we get to the next round of elections.”

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Many had expected rating agencies would wait until after the 2012 elections before taking any action. However, S&P’s decision appears to push that timeline forward or at least raise the heat on U.S. policymakers to get their books in order. It affirmed its AAA sovereign credit rating on the United States, but lowered its outlook to negative from stable and warned there is at least a 33% chance of a downgrade within two years.

The U.S. 30-year bond dropped a full point in early trade with yields spiking to 4.54% before ending around 4.45%. Canada’s S&P/TSX composite index fell 96 points, or 0.7%, to 13,702.3 and the S&P 500 declined 14 points, or 1.1%, to 1,305.14.

The U.S. dollar and treasuries usually act as safe havens, but are the very assets under review here, so the financial market implications of S&P’s move are a bit different in terms of risk aversion, according to Douglas Porter, deputy chief economist at BMO Capital Markets. As a result, he said alternatives such as gold, Canadian bonds and the Swiss franc will benefit as investors move away from long treasuries.

With more than two years passed since the financial crisis began, S&P noted that U.S. policymakers have yet to agree on how they will change the course of recent fiscal deterioration or address longer-term pressures. That contrasts with America’s peers such as France, Germany and the U.K., which have begun implementing plans to address their own problems.

Representatives in Washington are working on a deficit reduction plan that would save US$4-trillion to US$5-trillion over the next 10 to 12 years, but the rating agency wants to see a concrete plan in place by 2013.

That timeline could serve as a catalyst for agreement before the next round of elections, while the United States is also due to hit its US$14.3-trillion debt ceiling by mid-May.

“The first step is realizing it’s a problem, and to be honest, I don’t think the United States was really there,” Mr. Chandler said. “It still may not be there after the warning. After all, it is only a change in the outlook.”

The next step, of course, is doing something about it. However, the U.S. political structure will make this a tough task given that it requires sacrifice and co-operation between the Senate, Congress and the Obama administration on hot-button issues such as tax reform, reducing the huge Medicare and Medicaid bills, and addressing the future of Social Security.

Tous contrôlés par des groupes d’intérêts ayant des
objectifs différents, pas faciles !

The White House plan and that of House of Representatives Budget Committee chairman Republican Paul Ryan remain far apart ideologically, but a so-called “gang of six” Senators are trying to put together a compromise.

“At some point, they are going to have to have some real leadership that tells the people some hard choices have to be made,” said Norman Raschkowan, North American strategist at Mackenzie Investments. “But I’m not sure going into an election year is the time we’re going see that.

Carte des notations des dettes publiques par Standard & Poor's, Moody's et Fitch


Note : Carte interactive que vous pouvez générer vous –même, avec votre fichier Excel :  ChartsBin

In the face of warnings from the IMF and rating agencies, Canada was able to eliminate its $42-billion deficit, pay down billions on the national debt and bring the budget back to a surplus under finance minister Paul Martin in the 1990s. By cutting spending, reforming the Canadian Pension Plan and raising taxes, Canada’s debt-to-GDP ratio became the best in the G7 later that decade.

“The fact that Canada was able to address its deficit issues and bring tax levels down should give investors and American policymakers some confidence that it can be addressed,” Mr. Raschkowan said.

A roughly 15% decline in the trade-weighted U.S. dollar since it peaked in the middle of 2010 has provided some help. The manufacturing sector and export-oriented companies are doing better, while purchasing managers indices are also looking up.

A weak U.S. dollar is really part of U.S. economic policy,” Mr. Raschkowan said. He noted that the Bank of Canada adopted a similar approach by allowing the Canadian dollar to devalue gradually, which helped keep industry competitive.

“Other countries are paying the price, including Canada in terms of the adjustment process,” Mr. Chandler said. “It is allowing the U.S. to do something that isn’t available to countries like Greece and Portugal, which are in a currency union.”

L’effet ‘Grilled cheese’

Whether it is Canada in the mid-1990s or European countries in 2010, governments only tend to embark on meaningful fiscal austerity when global bond markets force them to, noted Colin Cieszynski, market analyst at CMC Markets Canada. As a result of investors’ merciless focus on weighing risk and reward, he sees the tone of fiscal debate shifting from stimulus to how much should be cut and when.

“With inflation pressure rising, lowering the potential for more monetary stimulus, the Street appears to be taking Standard & Poor’s announcement as the ringing of last call at the liquidity party,” Mr. Cieszynski said.