World Bank, Moody’s fighting for hearts and minds of stocks

June 23, 2009

Has it really come to this? Reuters is reporting that U.S. stock futures point to strong start to the day due to ratings firm Moody’s Investors Service affirmation of the U.S. AAA rating. This comes just one day after the World Bank’s call for a 2.9% decline in global output this year had stocks go splat around the world.

When the World Bank is the main catalyst for the downside and Moody’s affirming the US AAA rating – something few expect the three major ratings firms to change anytime soon – it’s safe to say that that something else is going on.

One answer is a lack of conviction by those trying to front-run a snap back in global economic growth and by extension stocks and other risky assets like junk bonds that have been benefiting from the surge in sentiment since March. Take the momentum away on sleepy summer trading days and brace yourself for volatile price swings.

Markets are bound to come into sharper later this week when the FOMC weighs in on policy – will it or won’t it extend it’s purchases of US Treasurys – and the mountain of supply in the U.S. get taken down by government bond markets that have proven relatively resilient given the amount of borrowing developed nations have embarked on.  The U.S. will sell a record $104 billion this week, starting with Tuesday’s two-year auction.

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