Spain’s Downgrade Has Equity Traders Wary

(eToro Blog) Standard & Poor’s yesterday announced that they were lowering Spain’s credit rating to a level still considered investment grade, but just barely. The decision this time to rate Spain’s credit at BBB- was the third rate cut this year, and though it was not entirely unexpected, it still sent markets roiling.

But analysts are hopeful that S&P’s move will have an unexpected albeit positive (for markets) consequence, and that is it could be the impetus to push the Spanish government forward to officially request financial assistance and mitigate some of the mounting pressure on Spain’s cost of borrowing. Moody’s decision is still being awaited, and is likely to put Spain’s ratings firmly into junk status. Analysts believe that Moody’s may now want to see whether or not Spain will react proactively to the S&P downgrade.

Spain has been reluctant to request the aid without first putting its fiscal house in order; a noble endeavor to be sure but it has the unexpected consequence of ratcheting up market uncertainty. Bond yields for Spanish debt have been edging higher and higher and some analysts believe that the S&P decision will naturally put more pressure on Spain’s sovereign debt sales, enough perhaps to compel Spain to stop vacillating on this important issue.

European equity markets closed lower yesterday, and are already trending lower today; the German DAX closed down 29.30 points while the French CAC40 lost 16.91 points. Currently, and despite the worries over Spain, both the French and German indices have edged higher, with the CAC gaining nearly 10 points and the DAX up 16 points. On OpenBook, sentiment is overwhelmingly bullish; 94% of traders are buying the CAC40 while 85% of traders are buying the DAX.

OpenBook trader paulchem from Australia gained 7.9% on a long position in the DAX that was opened at yesterday’s market closing. The trader is relatively new to OpenBook and still finessing a trading strategy, but already has two followers. The trader’s 82.2% allocation in the DAX has returned 3.6% thus far. Of the 117 trades executed this month, 62.4% have resulted in a profit; the trader’s realized equity for the month is 134.2%, and is 27.1% for last week.

Trader thzatan from France has been having a very good week with his 78.5% allocation in the CAC40 which earned 16.6%. Earlier, the trader closed out a pair of short positions which hit their TP with gains of 18% and 19.35%, respectively. The trader also had two short positions hit their TP yesterday, with gains of 24.44% and 43.80%, and again two days ago with a 27.18% gain on yet another short.

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