Is Monday shaping up to be just another lousy day? Observers and investors are no doubt biting their nails over what the day will bring, following Standard & Poor's shocking downgrade of the U.S. credit rating on Friday evening and the uncertainty the move brings to an already shaken global economy. But so far, well, anxiety might be overshadowing actual carnage.
Japan's Nikkei 225 was down just 1 per cent about one hour into the trading day on Monday. U.S. stock index futures were also down, but nothing rivalling Thursday's drama. Futures for the Dow Jones industrial average were down 196 points at 9 pm (ET). Futures for the broader S&P 500 were down 21 points.
Okay, that's not good news, but nor is it catastrophic. Consider that the Dow fell more than 500 points on Thursday, after concerns arose that the European debt crisis might be spilling into Italy and Spain. The S&P 500 fell 60 points or 4.8 per cent, drawing comparisons to the sort of freefalls we saw during the financial crisis in 2008 and 2009.
Meanwhile, gold is merely nudging higher, hitting a new record high of $1,687.80 (U.S.) an ounce, up $36. Again, hardly the sort of spectacle you might have been expecting. West Texas Intermediate crude oil dipped to $84.60, down 2.6 per cent.
What's going on here? Investors have had all weekend to mull over the implications of the credit rating downgrade, and the time might have been put to good use, with observers pointing out that the downgrade might not be warranted and might not have earth-shattering implications either. Indeed, the sort of declines that we're seeing so far on Sunday night here in the ET zone might be more reflective of ongoing economic concerns than anything specifically related to the credit rating downgrade. In other words, it's business as usual.
As well, people in high places have been attempting to fight back against the bad news. The Wall Street Journal noted that U.S. Treasury Secretary Timothy Geithner joined the chorus of boos against Standard & Poor's in an NBC interview on Sunday evening: "S&P has shown really terrible judgment and they've handled themselves very poorly," Mr. Geithner said. "They've shown a stunning lack of knowledge about basic U.S. fiscal budget math. And I think they drew exactly the wrong conclusion from this budget agreement."
In Europe, policy-makers have been attempting to add measures to contain the debt crisis there, after surging yields on Italian and Spanish bonds last week raised concerns that the two indebted countries could be following Greece into the financial abyss.
On Sunday, the European Central Bank signaled that it is ready to prop up Spain and Italy through government bond purchases.
As well, French President Nicolas Sarkozy and German Chancellor Angela Merkel released a joint statement highlighting the importance of increasing the European rescue fund and assembling a bigger bailout package for Greece. Earlier, France's finance minister said he had complete confidence in the U.S. economy.
The G7 finance ministers and central bankers also sounded a note of unity, sending out a statement that said: "We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth. These actions, together with continuing fiscal discipline efforts will enable long-term fiscal sustainability."
With this much unity, what can go wrong? Er, more on this later.
David Berman