S&P Cuts Russia's Rating to Junk, Moody's Issues Junk Warning

The S&P logo. Reuters
The S&P logo. Reuters
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S&P Cuts Russia's Rating to Junk, Moody's Issues Junk Warning

The S&P logo. Reuters
The S&P logo. Reuters

Russia's invasion of Ukraine triggered a flurry of credit rating moves on Friday, with S&P lowering Russia's rating to 'junk' status, Moody's putting it on review for a downgrade to junk, and S&P and Fitch swiftly cutting Ukraine on default worries.

Both countries' financial markets have unsurprisingly been thrown into turmoil by this week's events, which rank as the biggest military attack in Europe since World War Two, bringing stiff Western sanctions on Moscow.

S&P lowered Russia's long-term foreign currency credit rating to 'BB+' from 'BBB-', and warned it could lower ratings further, after getting more clarity on the macroeconomic repercussions of the sanctions.

"In our view, the sanctions announced to date could carry significant negative implications for the Russian banking sector's ability to act as a financial intermediary for international trade, Reuters quoted S&P as saying.

It also cut Ukraine's rating to 'B-' from 'B'.

Russia now has an "investment grade" rating of Baa3 from Moody's and an equivalent BBB- from Fitch, due to one of the lowest debt levels in the world at just 20% of GDP, and nearly $650 billion of currency reserves.

A downgrade, however, would lower that rating to the riskier "junk" or sub-investment grade category.

"The decision to place the ratings on review for downgrade reflects the negative credit implications for Russia's credit profile from the additional and more severe sanctions being imposed," Moody's said in a statement.

Sovereign rating reviews can take months but this time are likely to be quicker.

Moody's said its decision would factor in the scale of the conflict and the severity of additional Western sanctions, which have already hit some of Russia's top banks, military exports and members of President Vladimir Putin's inner circle.

It added it would also weigh the degree to which Russia's substantial currency reserves are able to mitigate the disruption stemming from the new sanctions and lengthy conflict.

"Moody's will look to conclude the review when these credit implications become more clear, particularly when the impact of further sanctions takes shape in the coming days or weeks," it said.

Moody's also put Ukraine's already-junk "B3" rating on review for a downgrade.

Fitch did not wait, however, and moved immediately to slash its Ukraine rating by a whole three notches to "CCC" from "B".



Gold Slips as US Bond Yields Rise, Investors Assess New Tariffs

Gold rings are displayed in a gold shop in Chinatown in Bangkok, Thailand August 21, 2018. REUTERS/Soe Zeya Tun/File Photo
Gold rings are displayed in a gold shop in Chinatown in Bangkok, Thailand August 21, 2018. REUTERS/Soe Zeya Tun/File Photo
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Gold Slips as US Bond Yields Rise, Investors Assess New Tariffs

Gold rings are displayed in a gold shop in Chinatown in Bangkok, Thailand August 21, 2018. REUTERS/Soe Zeya Tun/File Photo
Gold rings are displayed in a gold shop in Chinatown in Bangkok, Thailand August 21, 2018. REUTERS/Soe Zeya Tun/File Photo

Gold prices eased on Tuesday, weighed by higher US Treasury yields as US President Donald Trump announced new tariff proposals on trading partners, including Japan and South Korea.

Spot gold was down 0.2% at $3,328.67 per ounce, as of 1207 GMT. US gold futures fell 0.1% to $3,338.20.

The yield on benchmark US 10-year notes rose to a two-week peak, making the non-yielding bullion less attractive.

"Gold is stuck between a rock and a hard place," said UBS commodity analyst Giovanni Staunovo, Reuters reported.

"Negative for the gold price is the US decision to extend the deadline for a trade deal for many trade partners, positive for the gold price is the fact that key US trading partners in Asia might have to deal with higher tariffs in the near future, weighing on economic growth prospects."

On Monday, Trump told 14 countries that sharply higher tariffs would start on August 1, marking a new phase in the trade war he launched in April, with levies between 25% and 40%.

The new deadline was firm, Trump said, adding that he would consider extensions if countries made proposals for a trade deal.

"Reciprocal tariffs" were to be capped at 10% until July 9 to allow for negotiations, but so far, agreements have been reached only with Britain and Vietnam. In June, Washington and Beijing agreed on a framework covering tariff rates.

Meanwhile, China has warned the Trump administration against reigniting trade tensions and threatened to retaliate against nations that strike deals with the US to exclude it from their supply chains.

Trump's tariffs have stoked inflation fears, further complicating the US Federal Reserve's path to lower interest rates.

Investors await minutes of the Fed's June meeting, due on Wednesday, for more clues into the bank's policy outlook.

Spot silver fell 0.1% to $36.71 per ounce, platinum rose 0.2% to $1,372.51, and palladium rose 0.6% to $1,117.33.