THE TRADER'S JOURNAL

S&P Lowers Greece To 'Selective Default'

Market Brief

Risk appetite firmed in the Asian session despite news that S&P downgraded Greece to 'selective default', from CC. The credit agency stated that it was the insertion of the CAC that lead to the swap strategy to be labeled a distressed debt restructuring.

With the market generally expecting that the Greece debt swap would trigger a credit event, the logical flight to safety never occurred. In fact, risk appetite actually firmed. That said, the ISDA has not issued an opinion at these early stages of Greek debt exchange. Eurogroup president Juncker stated that the rating action on Greece was 'duly anticipated' and the necessary collateral enhancement for eligibility of Greek bonds on the Eurosystem, monetary policy operations will be implemented while Greece is in 'selective default'. In regards to the Greek swap Juncker stated 'I look forward to a high participation of private creditors in the PSI operation and take note of S&P's intention to upgrade the lower ratings following the settlement of the bond exchange.' In other ratings developments, S&P affirmed the EFSF's rating but outlook changed to negative. The rating agency went on to say that should any of the funds AAA or AA+ guarantors dropped below AA there would be a downgrade. In EU positive news, the IMF approved the disbarments of $4.33bn to Ireland after the successful report from the 5th troika review.

Portugal troika will be reporting today. EURUSD drifted higher from 1.3400 to 1.3452 while USDJPY slid momentarily through 80.20 support but momentum halted soon after. AUDUSD rallied to 1.0789 from 1.07501. Asia's regional indices were stronger with the Nikkei up 0.92%, the Hang Seng up -1.28% and the Shanghai Composite leading the pack with a meager gain of 0.19%. Overall, it has been a restrained trading session as markets look forward to tomorrow's critical ECB 3yr-LTRO operation. Yesterday in Germany the nations parliament passed the Greek bailout package in a 496-90 vote. This vote clears the way for Merkel to negotiate the final deal at the end of the weeks EU summit in Brussels. As for today, markets can expect Finland parliament to vote on the Greek rescue plan. Elsewhere in European sessions, Italy will auction 5yr and 10yr BTPs. On the data front, we have US S&P Case-Shiller home price index, US consumer confidence and US durable goods.

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