Last week Moody's upgraded Spain’s long-term rating by one notch to Baa1, this follows S&P’s one step upward revision to A-. Moody’s stated its review “reflects the improvements to the credit profile seen in recent years, in particular enhanced economic resiliency due to an increasingly more balanced growth profile and improved banking sector fundamentals.” Although the nation’s fundamentals have improved, we still calculate the country has a 2 star NFA ranking, so it is therefore not included in our investable universe.
This morning Moody’s downgraded China’s rating one notch from Aa3 to A1. This is still a high investment grade rating with Moody’s affirming, in their report, that China still has ‘very high’ ‘economic strength’ and ‘fiscal strength’ which in turn give the country a ‘high economic resiliency’ and ‘government financial strength’. The downgrade puts China’s rating in-line with Japan’s and aligns Moody’s assessment with Fitch’s (where China has never exceeded the current A+ level).
As was widely expected, rating agency Moody’s downgraded Turkey’s Baa3 long-term rating by one notch to junk, Ba1. Moody’s cited 'The increase in the risks related to the country’s sizeable external funding requirements' and 'the weakening in previously supportive credit fundamentals particularly growth and institutional strength' as the main drivers for the downgrade. A report from Moody's also highlighted the country’s susceptibility to event risk as ‘high’ adding its concerns over the country’s vulnerability to political instability and geopolitical risks emanating from ‘Syria’s ongoing civil war and the crisis in Iraq.’ After the failed coup in July, Standard and Poor’s swiftly downgraded the country’s rating to BB, however Moody's said it would take time to review the situation later stating, ‘The risk of a sudden disruptive reversal on foreign capital flows, a more rapid fall in reserves and, in a worst-case scenario, a balance of payments crisis has increased”. Fitch is the only major rating agency to maintain an investment grade rating on the country; at BBB-.
Oil is now close to 6 month highs today, with Brent touching $47 (up over 70% from January’s ~$27 lows) and US WTI reaching $45 per barrel. This is even above Moody’s Brent forecasts of $43/BOE for as far out as 2018 ($33 and $38 are forecast for this year and next) which were all revised down to these levels on the 21st January earlier this year. At the time this significant $10 downward revision for current oil expectations came after a number of smaller reductions and was perhaps viewed as a line in the sand which if crossed could signal serious concern, not only for oil companies but, for the global economy. Even this low $33 estimate carried warnings that, “Moody’s would be likely to lower this estimate if such an upward trend were not to materialize over the next several months.” Following this fundamental shift a broad range of oil related credits underwent single and multiple notch downgrades across all rating agencies.