Fertilizer Markets and Finance

Standard & Poor’s axe took another swing at Europe Monday, this time stripping Europe’s bailout fund of its AAA status.

The move was largely expected after S&P downgraded nine euro area governments last week, including France and Austria, two big backers of the European Financial Stability Facility. Like France and Austria, the EFSF is now rated AA+, according to S&P.

Last month, ratings agency had put nearly the entire European Union and the EFSF on notice for a downgrade. At the time, S&P had said that the EFSF’s rating would likely fall in line with the lowest cut.

The stability fund, or EFSF, is considered to be the “firewall” protecting the debt crisis from spreading across the eurozone. France’s downgrade to AA+ has an especially big impact on the rating of the EFSF because France is the second-largest backer of the fund, after Germany.

Experts have warned that a downgrade could lead investors to favor bonds issued by other AAA-rated nations at the expense of the stability fund. That would make it harder for the fund to raise money it needs to support countries like Portugal and Ireland, as well as a second bailout for Greece.

The EFSF is set to offer up to €1.5 billion of 6-month bills Tuesday.

Europe can’t catch a break

The remaining AAA backers of the bailout fund — Finland, Germany, Luxembourg, and the Netherlands — maintain their top tier rating.

Depending on how European officials react to the cut, S&P said the rating on the EFSF could either be restored or further downgraded.

“The outlook is developing, which reflects that we could raise the EFSF’s long-term rating to AAA if we see that additional credit enhancements are put in place, but also the likelihood that we could lower the rating further if we conclude that the creditworthiness of the EFSF’s members will likely be further reduced over the next two years,” the ratings agency said in a statement.

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Standard & Poor’s is stripping France of its AAA credit rating for the first time, Agence France-Presse reported, citing an unidentified government official.

S&P won’t change its rating on Germany, the Netherlands and Luxembourg, the official said, according to AFP.

A downgrade by S&P would signal that the latest pledges by European leaders to clamp down on deficits and step up cooperation won’t be enough to end the region’s debt crisis and curtail the rise in France’s borrowing costs. The country’s benchmark 10-year bonds now yield 133 basis points more than debt of AAA-rated Germany.

A downgrade of France may further complicate Europe’s efforts to stem the crisis by threatening the rating of the region’s bailout fund. The European Financial Stability Facility, which is funding rescue packages for Greece, Ireland and Portugal partially with bond sales, owes its AAA rating to guarantees from the euro region top-rated nations. A French downgrade may prompt investors to demand higher rates on the fund’s debt.

French President Nicolas Sarkozy has tried to minimize the potential impact of a downgrade, calling it “not insurmountable” in an interview published in Le Monde on Dec. 12, three days after an all-night summit in Brussels that he had said was the last chance to save the euro.

“If rating companies pull it, we’ll face the situation coolly and calmly,” Sarkozy told the newspaper. “It would be an additional difficulty but it’s not insurmountable. What is important is the credibility of our economic policy and our strategy of reducing spending.”

Election Woes

Sarkozy’s spokesman Franck Louvrier declined to comment on reports today that the government has been notified by S&P of a cut in the country’s rating.

The downgrade would come amid signs that France is slipping into a recession, complicating Sarkozy’s bid for re- election in voting in April and May.

Sarkozy, who has sought to protect his government’s creditworthiness by announcing tax increases and spending cuts, has attempted to position himself as the most credible candidate on economic matters.

Those austerity measures are contributing to the slowdown in France. The economy probably shrank 0.2 percent in the fourth quarter and will contract 0.1 percent in the first three months, the national statistics institute Insee said on Dec. 16.

Sarkozy trails his main rival, Socialist Party candidate Francois Hollande, by about 14 points in voting intention for the second round of the election, according to a BVA poll for Le Parisien newspaper published Jan. 9.

S&P, Moody’s

S&P first placed the ratings of 15 euro nations, including AAA-rated Germany and France, on review for possible downgrade on Dec. 5 pending an assessment of the summit. EU leaders, in their fifth attempt to come up with a comprehensive solution to end the debt crisis, agreed at the Dec. 9 summit to forge a tighter fiscal union, shore up its bailout funds and tighten rules to curb future debts.

Moody’s Investors Service followed on Dec. 12, saying it would review the ratings of all European Union countries after the summit failed to produce “decisive policy measures” to end the region’s debt turmoil. Fitch Ratings on Dec. 16 lowered its outlook on France and put all the euro-region’s non-AAA rated countries on review for possible downgrade. Fitch then offered France some relief on Jan. 10 when it said that it did not expect to cut the country’s top rating this year.

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net;

To contact the editor responsible for this stor Craig Stirling at cstirling1@bloomberg.net

NEW YORK (AP) — A growing belief that the U.S. economy may be headed toward recession gave the stock market its fourth straight week of losses.

The anxiety in the market was obvious Friday as the major indexes went from moderate gains early in the day to another sharp loss. The Dow Jones industrial average had its 10th move of more than 100 points in 15 trading days this month.

“We just don’t know whether we’re going to have a recession,” said John Burke, head of Burke Financial Strategies.

There was little news to help investors determine their next moves. However, JPMorgan Chase & Co. joined other financial firms and cut its forecast for economic growth during the fourth quarter. It’s now predicting growth at annual rate of just 1 percent, down from an earlier forecast of 2.5 percent. That added to the recession fears.

Investors disliked the news late Thursday that Hewlett-Packard Co. is planning to exit most of its consumer businesses, including PCs. HP fell 20 percent to a six-year low. HP plans to transform itself into a company that caters to corporations.

After the market rose early, some investors sold in case bad news comes out of Europe over the weekend. European investors were also cautious — banking stocks fell near two-and-a-half-year lows, dragged down by rumors about banks’ potential losses on bonds issued by heavily indebted governments.

“These things usually break out over the weekend and then you have a mad dash Monday to react to them,” said Mike McGervey, the head of McGervey Wealth Management.

The drop late in the day recalled the 2008 financial crisis. Then, many investors stepped up their selling in the afternoon out of fears about news that might break overnight — or on weekends. Lehman Brothers failed on Sunday, Sept. 15. The government took over mortgage companies Fannie Mae and Freddie Mac the previous weekend.

The Dow lost 172.93, or 1.6 percent, and closed at 10,817.65. It was down 4 percent for the week. Since July 21 — four weeks and one day — the Dow is down 15 percent.

Companies that rely on an expanding economy for higher revenue fell. Caterpillar Inc., International Business Machines and Alcoa Inc. each fell more than 2 percent.

The Standard & Poor’s 500 stock index fell 17.12, or 1.5 percent, to 1,123.53. It was down 4.7 percent for the week. All 10 industry groups that make up the index fell.

The Nasdaq composite fell 38.59, or 1.6 percent, to 2,341.84. It was down 6.6 percent for the week.

Although stocks fell, investors did not continue pushing the price of Treasurys, as they have the last three weeks. The yield on the benchmark 10-year Treasury note was almost unchanged at 2.07 percent, compared with late Thursday’s 2.06 percent. It had been up to 2.11 percent earlier in the day. The yield fell below 2 percent Thursday for the first time as heavy demand sent its price sharply higher.

Investors began the week confident after last week’s volatility, the worst the market has had since the 2008 financial crisis. The Dow rose nearly 215 points on Monday when Google, Time Warner Cable and Cargill were among companies announcing multi-billion deals. The market remained relatively calm the next two days. But on Thursday, a stream of bad economic news in the U.S. combined with worries about Europe’s debt problems and sent the Dow plunging 419 points.

Since July 21, the market has gone from one crisis to another, and the weakening U.S. economy has been at the heart of the selling. In late July, the concern was the debt debate going on in Washington. In early August, it was the downgrade of the U.S. debt rating by Standard & Poor’s. Since then, worries about the impact of the downgrade have faded, and growing evidence that the economy is slowing has driven stocks down.

Signs of a slower economy around the world have only made investors more pessimistic about the U.S. Earlier this week, Germany said its economy grew just 0.1 percent in the second quarter. And Germany is the strongest economy in Europe.

Stocks fell Thursday on news of another drop in home sales, weaker manufacturing in the mid-Atlantic states and an increase in the number of people who applied for unemployment benefits.

The stock market tends to reflect the expectations that investors have for the economy and company earnings six to nine months in the future. So traders are interpreting the numbers they’re seeing as part of a slide in the economy that will continue for some time.

The stock market buckled Monday under the weight of a crisis in Europe and danger of recession at home. Reeling from a downgrade of American debt, the Dow Jones industrials plunged 634 points.

It was the worst day for the market since the financial crisis in the fall of 2008 and extended Wall Street’s sudden, sharp decline. Stocks have lost 15 percent of their value in just two and a half weeks.

Monday was the first trading day since Standard and Poor’s downgraded the United States’ risk-free credit rating, and the selling started at the opening bell. The Dow dropped 250 points in minutes. For the rest of the day, investors looked for safer places for their money. With few buyers left for stocks, the market could only drift lower.

The Dow finished the day down 5.5 percent. The point decline was the worst since Dec. 1, 2008, and the sixth-steepest ever. The average ended at 10,809.85, its first close under 11,000 since November.

The turmoil in the U.S. markets was the end of a daylong rout that swept the world. Stocks lost 4 percent in South Korea and 2 percent in Japan, then 5 percent in Germany and 4 percent in France.

The selling picked up again early Tuesday in Asia. Japan’s benchmark Nikkei 225 index was off nearly 5 percent, while Hong Kong’s Hang Seng index shed more than 7 percent.

In the U.S., stocks fell even though Moody’s, another major credit rating agency, stood by its top rating of Aaa for the United States. It said it could downgrade the U.S. if it did not cut its deficit, “but it is early to conclude that such measures will not be forthcoming.”

In a bit of irony following the S&P downgrade, investors decided U.S. debt was one of the safest places to be. They also sought refuge in gold, which set a record price.

“The S&P downgrade of U.S. government debt is the least of our problems,” said economist Scott Brown at Raymond James & Associates. “The bigger worry is subpar economic growth and the threat of a new recession.”

BEIJING (AP) — China, the largest foreign holder of U.S. debt, demanded Saturday that America tighten its belt and confront its “addiction to debts” in the wake of Standard & Poor’s decision to downgrade the U.S. credit rating.

China currently owns $1.2 trillion of U.S. Treasury debt, the largest stake of any central bank. The commentary carried by the state-run Xinhua News Agency was Beijing’s first official response to the S&P decision.

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” Xinhua said.

It said the rating cut would be followed by more “devastating credit rating cuts” and global financial turbulence if the U.S. fails to learn to “live within its means.”

“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets,” it said.

Xinhua said the U.S. must slash its “gigantic military expenditure and bloated social welfare costs” and accept international supervision over U.S. dollar issues.

Last month, China’s top general, Chen Bingde, also linked America’s financial woes to its military budget and asked whether paring back on defense spending wouldn’t be the best thing for U.S. taxpayers.

Such comments reflect Beijing’s desire that Washington reduce its military presence in Asia. The U.S., rattled by China’s military buildup, also routinely chides Beijing for its fast-growing defense spending.

Xinhua also suggested a new global reserve currency might be necessary to replace the dollar, a position China has frequently advocated.

Standard & Poor’s has threatened to downgrade the U.S. sovereign rating, which is currently ‘AAA’, to ‘D’, meaning a default in the country’s credit worthiness, if the government fails to honor U.S. Treasury debt payments.  On this predicament, the IMF said: “At the opposite extreme, an excessively front-loaded adjustment could hurt the recovery. And a worsening of financial turmoil in European sovereign and bank debt markets could hurt U.S. growth through financial sector linkages.