BLACK MONDAY?

Dubai Shares Drop Most Since February

Middle East shares tumbled, sending Dubai’s index down the most since February, after Standard & Poor’s cut the credit rating of the U.S. for the first time and amid rising concern the global economy is faltering.

Emaar Properties PJSC (EMAAR), developer of the world’s tallest tower, slumped 5.3 percent. Arabtec Holding Co. (ARTC) dropped the most since March after it said second-quarter profit fell 74 percent. The DFM General Index (DFMGI) lost 3.7 percent, the most since Feb. 28, to 1,484.31 at the 2 p.m. close in Dubai. The measure has plunged 12 percent from this year’s high in April, entering a so-called correction. Israel’s TA-25 Index slumped 6 percent, the most since November 2008, at 3:51 p.m. in Tel Aviv.

“We’re playing catch-up and trying to anticipate and price in the response to the downgrade by global markets tomorrow,” said Julian Bruce, equity sales head at EFG-Hermes Holding SAE in Dubai. “The impact on stock prices that we’re seeing reflects the feelings of uncertainty” about global growth, he said.

Global stocks tumbled last week as investors fled equities amid signs the world’s largest economy is stalling. S&P downgraded the AAA credit rating of the U.S. on Aug. 5 by one level to AA+, while keeping the outlook at “negative.” The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said.

Global Slump
U.S. and European shares posted their biggest weekly losses since November 2008. The S&P 500 plunged 7.2 percent and the Stoxx 600 Europe Index tumbled 9.9 percent. The European Central Bank left interest rates unchanged on Aug. 4 as economic growth slows and the region’s debt crisis spreads to Italy and Spain.

Oil for September delivery tumbled 9.2 percent last week to $86.88 a barrel on the New York Mercantile Exchange. The six nations of the Gulf Cooperation Council supply about a fifth of the world’s oil.

The Bloomberg GCC 200 Index (BGCC200) of the region’s stocks declined 1.4 percent and Egypt’s EGX 30 Index (EGX30) slid 4.2 percent today.

Emaar fell the most since March 2 to 2.88 dirhams. Arabtec, the United Arab Emirates’ biggest construction company by market value, tumbled 6.3 percent, also the most since March 2, to 1.34 dirhams. Second-quarter profit dropped to 28.97 million dirhams ($7.9 million) from 111 million dirhams a year earlier. The mean estimate of six analysts was for a profit of 44 million dirhams, according to data compiled by Bloomberg.

Israel’s Slump
Oman’s MSM 30 Index decreased 1.9 percent. Abu Dhabi’s ADX General Index (ADSMI) and Qatar’s QE Index (DSM) lost 2.5 percent. Kuwait’s gauge decreased 1.6 percent to the lowest since September 2004. Bahrain’s BB All Share Index slipped 0.3 percent, while Saudi Arabia’s Tadawul All Share Index (SASEIDX) rose less than 0.1 percent after tumbling 5.5 percent yesterday.

Israel’s TA-25 Index slid to 1,085.44 and is down 19 percent from a record high on April 21. The open of trading in Israel was delayed by an hour after circuit breakers went into effect as the opening auction indicated a 5 percent decline. The yield on the 5 percent Mimshal Shiklit government bonds due January 2020 rose five basis points, or 0.05 percentage point, to 4.95 percent.

“If there’s a storm globally, it’s going to affect Israel, which has very large exports to the U.S. and the eurozone,” said Ron Eichel, chief economist and strategist at Meitav Investment House Ltd. in Tel Aviv. “It could be a turbulent market in the next few weeks.”

S&P Explains Why The “$2 Trillion Error” Is Irrelevant

Submitted by Tyler Durden on 08/07/2011 11:14 -0400

Yesterday we showed that when it comes to projections, the CBO’s own track record makes S&P shine in comparison. Apparently this fact was not lost on S&P itself which sent out a note explaining which “clarified assumption used on discretionary spending growth.” Basically, as S&P says, “Our ratings are determined primarily using a 3-5 year time horizon. In the near term horizon, by 2015, the U.S. net general government debt with the new assumptions were projected to be $14.5 trillion (79% of 2015 GDP) versus $14.7 trillion (81% of 2015 GDP) with the initial assumption – a difference of $345 billion.” So yes, while by 2021 the difference could be $2.1 trillion based on the CBO’s current baseline model, the truth is that the CBO’s own estimate on revenue and spending projections in a decade will likely have a +/- $10 trillion margin of error. So does anyone really care? In essence all S&P did was point out what Zero Hedge and others have been saying: that a “deficit cutting” plan which is massively back end loaded and has about $20 billion in cuts over the next year is absolutely without credit or merit. And the disingenuity on the side of Treasury to believe that someone would think otherwise is simply appalling. That said, while the markets look set to crash very shortly, the overabundance of catalysts means that it will be more than just the downgrade that throws risk into a tailspin. Although prepare for an all out onslaught by the Treasury on S&P as a scapegoat. After all in USSAA(negative outlook) it is never our fault: it is always someone else’s.

Full S&P note:

Standard & Poor’s Clarifies Assumption Used On Discretionary Spending Growth

New York, Aug. 6, 2011. In response to questions, Standard & Poor’s today said that the ratings decision to lower the long-term rating to AA+ from AAA was not affected by the change of assumptions regarding the pace of discretionary spending growth. In the near term horizon to 2015, the U.S. net general government debt is projected to be $14.5 trillion (79% of 2015 GDP) versus $14.7 trillion (81% of 2015 GDP) with the initial assumption.

We used the Alternative Fiscal Scenario of the nonpartisan Congressional Budget Office (CBO), which includes an assumption that government discretionary appropriations will grow at the same rate as nominal GDP. In further discussions between Standard & Poor’s and Treasury, we determined that the CBO’s Baseline Scenario, which assumes discretionary appropriations grow at a lower rate, would be more consistent with CBO assessment of the savings set out by the Budget Control Act of 2011.

Our ratings are determined primarily using a 3-5 year time horizon.

In the near term horizon, by 2015, the U.S. net general government debt with the new assumptions were projected to be $14.5 trillion (79% of 2015 GDP) versus $14.7 trillion (81% of 2015 GDP) with the initial assumption – a difference of $345 billion.

In taking a longer term horizon of 10 years, the U.S. net general government debt level with the current assumptions would be $20.1 trillion (85% of 2021 GDP). With the original assumptions, the debt level was projected to be $22.1 trillion (93% of 2021 GDP).

The primary focus remained on the current level of debt, the trajectory of debt as a share of the economy, and the lack of apparent willingness of elected officials as a group to deal with the U.S. medium term fiscal outlook. None of these key factors was meaningfully affected by the assumption revisions to the assumed growth of discretionary outlays and thus had no impact on the rating decision.