Please see our previous two posts on the US credit rating downgrade posted earlier on Finance Training Course. The first post is an initial announcement and gut check, while the second reviews analysis published over the last 48 hours in global media supplemented by our opinions and outlook.
US Credit Rating Downgrade Day One – Commodities Outlook for Monday
US Credit Rating Downgrade End of Day One – Impact on Commodities and Financial Markets – Analysis
All eyes on Tokyo and Singapore open to get a sense on trading direction for the US$, precious metals and crude oil. Somewhere over the next six hours we will get a sense of how investors have digested the rating downgrade news from New York and DC over the weekend.
For now according to the Wall Street Journal, DTCC, OCC and ICE have all indicated that there Treasury valuation models, collateral rules and hair cut requirements will not change when it comes to AA+ rated US treasury securities. Post the ECB and G7 conference Sunday evening, similar re-assuring statements are expected from ECB and G7 member countries. The ECB plan to buy European bonds this week should also fuel weakness in Euro which should counterbalance any depreciation of the US dollar against the Euro.
No spike in treasury sales is expected given reassuring noises made by all major sovereign investors in Europe, Middle East and Asia.
It will be interesting to see how LIBOR rates on dollar deposits move when market opens in Europe on Monday morning.
If equity market action in the Middle East (Dubai, Abu Dhabi, Saudi Arabia and Israel) is any indication, markets should drop anywhere from 3% – 7% today starting from Tokyo and ending in New York as speculative trades and unwound and investors move to safer assets (US Treasuries).
Some analysts are forecasting a $10 – $25 spike in the price of crude oil if the US dollar heads south.