Tuesday, August 9, 2011
Share market Live
US Dow Jones industrial average dropped over 7.8% last week with sharp declines in Thursday where marker
lost over 4% on Intraday.
The US dollar is coming under pressure after the rating cut while the outlook for the US dollar is too bearish
against the rival Euro and GBP. Euro debt problems are much deeper than the US and UK economy is now
turning towards one more double dip recession. Swiss franc is looking a better option compared to other
European currencies with better sovereign rating outlook. The Swiss franc has gained over 30% from past one
year v/s the US dollar.
Few comments after the US rating cut:
Treasury Secretary Timothy Geithner said US Treasury debt is as safe as it was before the S&P downgrade,
urging European leaders to ensure there is an "unequivocal financial backstop" for euro zone governments
facing fiscal and debt problems
Former Federal Reserve Chairman Alan Greenspan said that double-dip recession "depends on Europe, not
the United States”. The United States was actually doing relatively well -- sluggish, but going forward -- until
Italy ran into trouble. "This is not an issue of credit rating. The United States can pay any debt it has because
it can always print money to do that. There's zero probability of default. What I think the S&P (downgrade)
did was to hit a nerve. ... It's hit the self-esteem of the United States, the psyche. And it's having a much
profounder effect than I conceived could happen."
ECB to buy Spanish and Italian Bonds: In a statement issued on Sunday, the ECB Chairman signaled the
readiness to start buying Italian and Spanish bonds in an attempt to contain the sovereign debt crisis. He said
that he will "actively implement" the bond purchase program, the statement also called on all the
government in the euro area to follow through on the steps which were agreed to on July 21. Germany’s
Bundesbank opposes the move, as Buying Italian and Spanish debt may require the ECB to expand its balance
Italy is the euro area’s biggest bond market, with 1.8 trillion euros of outstanding debt as of Dec. 31,
compared with 1.1 trillion euros of German debt outstanding on June 30.
On early Monday European trading, the spread on five-year Italian CDS narrowed 71 basis points to trade at
315 basis points. The five-year Spanish CDS spread narrowed 77 basis points to 328.
Despite the ECB purchase, we donot see any major setup for Euro rally. By expanding the balance sheet with
riskier assets the ECB may face serious challenges if economic recovery donot gather pace in the EU area. As
per our view, the austerity measures along with serious challenges from market, EU may face slowdown
further. The EURUSD should slide on the backdrop of fundamental issue in the EU despite US got a rating cut.
US Treasury is still regarded as safe haven in uncertainties there is nothing much left for investors to park
their investments apart from Gold, German Bund, UK Gilt and US treasuries.
Shorting Euro and Holding it looks a better strategy for next 3-4 months perspective.
USDINR outlook Bullish: The US dollar is expected to trade higher v/s the Indian rupee as local stocks get the
beating from global macro events. Any pressure on global liquidity may drive the USDINR higher. We may see
levels such 45.50 and 46.00 in the short term.
Posted by Morgan at 8:29 AM