Morning Meeting: Moody's double edged sword

Good Morning.

Moody's Investors Service verdict is out: Spain's sovereign rating has been confirmed at Baa3 yesterday, keeping it at investment grade for the time being. However, it assigned a negative outlook to the rating as a reminder that a downgrade into junk territory is likely if conditions deteriorate further. The ratings agency said:

The risk of the Spanish sovereign losing market access has been materially reduced by the willingness of the European Central Bank to undertake outright purchases of Spanish government bonds to contain their price volatility.

Moody's verdict will work as a double edged sword because: if from one side will offer some sort of relief for investors in Europe by eliminating an overhang on Spanish debt, on the other side it will soften pressure on the Spanish government to ask for a full scale bailout. The question is which side of the sword will prevail?

The risk on mode sparkled in Europe and followed in US yesterday made its way to Asia this morning where Asian investors jumped in financials, shippers and resources shares sending regional benchmarks to multi month highs.

The largest markets of the region gained around 1% point, with Japan's Nikkei up 1.41% to 8,824.07, Hong Kong's Hang Seng Index climbing 0.96% to 21,411.26. Likewise, South Korea's Kospi rose 0.72% to 1,955.57 while the Shanghai Composite index traded 0.11% to 2,101.05.

To be pointed out: the Nikkei reported that an emergency cabinet meeting is likely to be called on Wednesday by the Japanese Prime Minister Yoshihiko Noda to discuss stimulus measures for the Japanese economy, the news gave a boost to the market, but what impressed me was the currency reaction:

if you were waiting for the Yen to slip versus the Dollar because such a move is increasing money supply and therefore downward pressure on the Asian currency, well, have a look at the market, the dollar slipped to 78.82 yen on this morning, down slightly from ¥78.91 in late action Tuesday, but above Monday's ¥78.71 level. During October, the dollar has gained more than 1% against the yen, according to FactSet.

The dollar also weakened against the euro, the common currency rose 0.29% to 1,3093$ up form $1.3051 late Tuesday. The dollar move offered support to dollar valued commodities as Oil and Gold: the Oil (WTI) rose 0.15% to 92.23$ a barrel while the precious metal rose 0.34% to 1,752.30$ an ounce.

Today investors will try to choose which one of the two side of the sword will prevail, with the European leaders' meeting just few hours ahead chances are for a choppy day. It's time to prepare our plan the opening bell is less than an hour away.

Have a great day.

Originally posted at www.77sigmatrading.com