S&P Friday cut the U.S. government debt rating from AAA to AA+ with a negative outlook, the first time in modern history that one of the three main ratings firms has stripped the U.S. of its AAA status. The move puts rating of the world's biggest economy below Liechtenstein and more than a dozen other countries, and on par with Belgium and New Zealand.
For Asian governments, the downgrade is bad news. Most countries in the region are running large trade surpluses with the U.S., resulting in a large accumulation of dollars, which they have ploughed into U.S. government and agency bonds. Any disruptions to the U.S. economy, a major market for Asian exporters, would also have serious implications for Asia's economy.
Japan, the second largest creditor to the U.S. after China, stood by its long-time ally, saying the attractiveness of U.S. Treasurys as an investment has not changed, despite the S&P move late Friday in New York.
Asian stocks August 5 2011
Asian stocks tumbled as fears rose that the global economy may be heading for a recession with the European debt crisis spreading and the US economy slowing. This pushed the FTSE Asia Pacific index down 3.7%, off more than 10% from its May peak.
Japan's Nikkei 225 Stock Average plunged 3.7% to its lowest levels in more than four months as exporters took a beating. South Korea's Kospi Composite index also fell 3.7%, plumbing its lowest intraday levels since March. Australia's S&P/ASX 200 declined 4% to a two-year low as concerns about the global economy pounded resources stocks.
China's Shanghai Composite index shed 2.2% as commodity producers, property developers and banks slid on fears of a double-dip recession in the global economy. Hong Kong's Hang Seng lost 4.2%.
U.S. dollar will continue
the depreciation trend for the U.S. dollar will continue. "The U.S. dollar will be in the depreciation trend in the long term
Asian Market Outlook week august 8 2011
Xia Bin, an academic adviser to the People's Bank of China, said the depreciation trend for the U.S. dollar will continue. "The U.S. dollar will be in the depreciation trend in the long term," he said.
Yoon Jong-won, a senior official at South Korea's Ministry of Strategy and Finance, told Dow Jones that while the credit downgrade isn't a good news, local authorities will first have to see how the market reacts to the downgrade.
"It's not clear how much additional shock this downgrade will bring," he said. "We'll first have to see how the U.S. market reacts to the news in terms of how big a movement in capital occurs there and at what pace."
South Korean central bank and government officials are scheduled to meet at 0700 GMT Sunday to discuss market conditions and how the government needs to respond.
Korean officials have acknowledged that the heightened concerns about U.S. and European economic health will affect the local economy and markets in the short term but have said that Korea's economic fundamentals remain sound.
Douglas C. Borthwick, managing director at Faros Trading, LLC said all eyes will be on China, saying any comments from Chinese Premier Wen Jiabao would likely to provide direction for financial markets when they open next week.
China has nearly $3.2 trillion of foreign exchange reserves, and some estimate that as much as 70% are in dollar denominated assets.
"We expect this to be dollar negative across the board," said Borthwick.
Analysts say Japan is unlikely to sell any of its dollar-denominated assets at a time when it is fighting to stem the yen's rise to near a record-high against the greenback.
On Thursday, together with further credit easing by the Bank of Japan, the finance ministry intervened in the currency market, selling an estimated Y4.5 trillion, double the previous one-day record for a yen-selling operation.
The yen sales, most likely against the dollar, will further increase its foreign reserves, which hit a record high of Y1.151 trillion at the end of July. Of the total, Y1.060 trillion yen was held in securities, most of which are believed to be U.S. Treasurys, finance ministry data showed.
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Sensex bounced exactly from the level of 16990, I had mentioned that sensex could hit 16969, sensex bounced exactly from 16990.
ReplyDeleteWhat next?
August will be volatile month and will see turbulent markets, the present correction would end in September, when markets take off in a big way.
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