Standard and Poor’s is moving to downgrade the United Kingdom’s credit rating. The agency cited the potential that the government’s debt may equal the country's output. The worse a country's credit rating, the more expensive it is to borrow.
The move to lower the country’s rating caused the British pound to drop. The FTSE 100 stock market index fell over 2%.
But according to an article in The Wall Street Journal, the U.S. markets are also expected to drop. Less than two hours before the start of trading, Dow Jones Industrial Average futures were 43 points lower at 8,352.
U.S. retail sales (released last week) declined 0.4% when no decline was expected, and ex-auto retail sales declined 0.5% while markets expected rather a gain of 0.2%. That evaporated any hope for an economic turnaround in the near future or third quarter. This week's initial jobless claims at 637,000 came in higher than the 610,000 expected, and continuing claims hit a new record at 6.56 million... Now we have some clouds over the green shoots, which have enjoyed sunshine for 4-5 weeks, reducing the appetite for risk.
Harinder adds, “While the U.S. dollar stabilized, new fears of credit downgrades will surely hurt its run. Investors should anticipate a weaker U.S. dollar.”
Originally published May 21, 2009.
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