Super Committee Failure Not A Surprise

November 22, 2011 12:05 AM

What Traders are Talking About:

* Super Committee fails. The Super Committee conceded defeat Monday in its attempt to come up with a plan to reduce the deficit by at least $1.2 over 10 years. As a result, there's concern the U.S. credit rating could be cut. As of now, however, the three major credit rating agencies are not lowering their U.S. sovereign ratings. Moody's said the Super Committee failure will not by itself lead to a rating cut. S&P says the Super Committee failure was already factored in when it downgraded the U.S. in August. And Fitch, which has the U.S. rated highest, says it will conclude a review of its U.S. sovereign rating by the end of November.

The long and short of it: Congress is seemingly doing its "best" to drag the U.S. into the broader financial mess.

* China reportedly starts cutting bank reserve requirements. China will reportedly cut reserve requirements for five rural banks in the province of Zhejiang by 50 basis points, effective Nov. 25, although there is no official word yet from the People's Bank of China. Because the five banks are relatively small, the market impact is likely to be limited, but there is now speculation China will start to ease reserve requirements for larger banks.

The long and short of it: Easing inflation and slowing economic growth have triggered speculation China would start to ease monetary policy after an extended tightening cycle. This would be the first sign of that happening.

* Spanish bond yields soar. Yields on Spanish short-term bonds surged to 14-year highs overnight in the latest sign that the euro-zone debt crisis is spreading. Soaring bond yields in Spain, Italy and less important euro-zone countries are a concern. And now traders are closely monitoring France's bond yields, which have started to rise.

The long and short of it: With signs the euro-zone crisis is getting worse, not better, investors are likely to continue to take on a risk-averse stance.


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