U.S. markets rattled

U.S. markets rattled

RTGAM


U.S. markets were hit with one of those uh-oh moments on Thursday morning when Standard & Poor's took one step toward downgrading the U.K.'s top triple-A credit rating. The U.K. is an ocean away, but the similarities between it and the United States are striking, a point not lost on investors who sent global stock market indexes down.

S&P lowered its outlook on U.K.

debt to "negative" from "stable," pointing to the extremely high debt levels
there. Right now, government debt represents nearly 67 per cent of the country's
economic outlook, and S&P is concerned that debt will soon approach 100 per
cent of gross domestic product.
Sound familiar?

According to Bloomberg, U.S. debt is 70.4 per cent of GDP, which suggests that its triple-A credit rating is also at risk. The effect in the U.K. has been dramatic: Bond prices are down, the pound is down and the FTSE 100 was down 2.2 per cent in
afternoon trading - a potential preamble to what the U.S. can expect if its
credit rating is also put on watch.

With about an hour before markets open, U.S. stock index futures were down, suggesting that stocks will fall at the start of trading. Futures for the Dow Jones industrial average were down 70 points. Futures for the broader S&P 500 were down 7 points.

Stocks certainly weren't given a helping hand from the latest snapshot of U.S. unemployment claims. Last week, initial claims were 631,000, down slightly from a revised 643,000 the week before - but still above the 600,000 threshold and slightly worse than what economists had been expecting. Just as troubling, continuing claims rose yet again to 6.66 million, suggesting that laid off Americans are still have trouble finding new jobs.

"The fact that the four-week moving average for initial claims fell is indicative of a slower pace of job destruction, though we are not convinced that a significant improvement is among us quite yet," said Ian Pollick, economics strategist at TD Securities, in a note. "In addition, the fact that the four-week moving average for continuing claims has drifted consistently higher for 66 straight weeks is indicative of a labor market shut for business."

Copyright 2001 The Globe and Mail

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