"A significant loosening of fiscal policy, which leads to an increase in the gross general government debt /GDP ratio, would result in a downgrade of India's sovereign ratings," Fitch said in a statement on Monday.
The agency estimated general government debt for India of 66 percent of GDP at the end of the most recent fiscal year, compared with a median of 39 percent for BBB-rated countries.
India's economy grew just 5.3 percent in the March quarter, the weakest in nine years, but earlier on Monday the central bank unexpectedly left interest rates on hold, sending bonds, stocks and the rupee lower.
The rupee weakened further to 55.94 per dollar from around 55.82 before the Fitch statement. Bond yields were range-bound, while stocks were already shut for the day.
"Against the backdrop of persistent inflation pressures and weak public finances, there is an even greater onus on effective government policies and reforms that would ensure India can navigate the turbulent global economic and financial environment and underpin confidence in the long-run growth potential of the Indian economy," Art Woo, a Fitch director, said in a statement.
Fitch maintained its BBB- rating, the lowest investment grade.
Fitch said it expects the Indian economy to grow just 6.5 percent in the fiscal year that ends in March, down from its earlier forecast of 7.5 percent, while it expects wholesale price index inflation to average 7.5 percent.
"India also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms," it said.
A week ago, S&P said India could become the first of the BRIC economies, which also include Brazil, Russia and China, to lose its investment-grade status, prompting an angry response from the government.
 |
| Greece Exits Euro |
Economists estimate that volatile markets and business uncertainty over the fate of Greece and the policy course in Europe is already shaving anywhere from one tenth to one half a percentage point from U.S. 2012 gross domestic product growth.
In a Reuters poll last week, U.S. GDP was forecast on average at 2.3 percent for 2012 and 2.4 percent for 2013.
The direct hit to growth comes through trade. U.S. exports to the European Union account for 19 percent of total exports, and those to the euro zone represent 13 percent of the total. But when calculated in terms of GDP, the share is tiny—only 1.3 percent of total output.
The indirect effects are another matter. Europe in 2010 accounted for 25 percent of world trade, according to Deutsche Bank. Europe also is the biggest trading partner for China and the United States. Loss of this market would ripple worldwide and slow global growth.
The other indirect impact is through the financial sector.
If Greece were to leave the euro zone, it would raise questions about the survival of monetary union and trigger turmoil in markets. Business investment would stall, banks would pull back on credit, and lost wealth as equity prices fall would cause consumers to slow their spending. Commodity prices would plunge, helping importers but hurting growth in export economies.
The extent of the damage would depend upon how quickly global policymakers could stop the rout and stabilize markets.
Following is a look at three scenarios for the euro zone and the likely impact on the U.S. economy.
Euro Zone Stumbles Along
SCENARIO: Greece elects a government on June 17 that continues implementing the EU/IMF bailout program, possibly with some softened conditions. Greece stays in the monetary union for now. Spain recapitalizes its banks, possibly with some EU help. ECB liquidity injections and EU-wide guarantees help stabilize the big French and German banks to insulate them and the broader financial markets from further damage. Bouts of market uncertainty continue in the months and years ahead, but gradually EU integration advances.
IMPACT: Ongoing volatility in financial markets and slow-to-mildly negative euro zone growth would continue acting like a low-grade fever weakening U.S. growth. This already is the baseline scenario for most analysts' forecasts. TD Economics said it has marked down its 2012 outlook for 2.0 percent growth by about a quarter to half a percentage point because of Europe. IHS Global Insight has trimmed about one tenth of a point from its 2.2 percent forecast for this year.
Greece Leaves Euro Zone
SCENARIO: An anti-austerity government takes power in Greece and rejects the bailout terms. The EU and IMF stop lending Greece money. Athens runs out of cash, defaults on its debt and starts printing its own currency to pay bills. Its banking system collapses. The European Union has had time to draw up contingency plans and succeeds in preventing the currency exit and debt default by Greece from pulling down Spain, Italy and Portugal and manages to stabilize its banking sector quickly. The Federal Reserve may help provide market liquidity through new FX swaps with Europe andquantitative easing.
IMPACT: Greece accounts for only 2 percent of euro zone GDP and U.S. exports to Greece are negligible. So too is U.S. credit exposure. U.S. money market funds have largely moved away from investing in Europe. Greece owes the private sector $70 billion, but mostly that is to German and French banks, according to the Institute of International Finance. The bulk of its $460 billion in external debt is held by the European Central Bank, the European Union and the International Monetary Fund.
Hence the direct impact of a default and euro exit by Greece on the U.S. economy would be quite small, as long it were contained - but that is a big "if." Once one country leaves, market focus would switch to other deeply indebted countries - Spain, Portugal, Ireland and even Italy. European policymakers would need to sling a safety net under these countries and big EU banks to prevent the contagion from spreading and imperiling the euro zone.
The immediate shock of a Greek exit probably would shave half a percentage point from U.S. GDP in the quarter when it happened and soften growth in the subsequent quarter, said Craig Alexander, chief economist at TD Economics. But if managed smoothly, a Greek exit could cause a burst of optimism that the euro zone woes are over and strengthen U.S. output subsequently, he said.
Nariman Behravesh, chief economist at IHS Global Insight, said his firm is about to change its baseline forecast to a managed Greece exit, probably early next year. He expects to cut its U.S. GDP forecast for 2013 of 2.4 percent by two to three tenths of a percentage point.
Messy Greek Exit, Damage Spreads
SCENARIO: Greece crashes out of the euro. Yields skyrocket for Spanish and Italian bonds locking them out of the government debt markets. Spanish and Italian depositors withdraw cash in panic over the possibility of their countries leaving the euro zone, too. Global equity markets sink. Investors pile into U.S. markets as a safe haven. The U.S. dollar soars as the euro plunges. European banks face funding shortages as investors shun the euro zone and the banking system seizes up. Global markets become chaotic.
IMPACT: This is the nightmare scenario. The economic impact in the United States would be felt through trade, financial linkages and business and consumer confidence. The size depends upon how quickly policymakers could stabilize the situation and whether any big financial institution whipsawed by a rapid repricing of assets is in danger of collapsing.
At the very least, shockwaves through financial markets would cause a downward jolt to the U.S. economy, immediately erasing at least half a percentage point from growth in that quarter.
If Europe's banking system shuts down, violent shudders through global financial markets would equal or surpass those seen when Lehman Brothers collapsed in 2008. Banks are better capitalized today than four years ago and therefore better able to weather the storm. But with interest rates near zero and governments fiscally stretched, advanced economies this time around would have fewer tools to offset the hit to growth.
At the very least, the U.S. and global economy would fall back into recession, and some economists warn it would be far deeper and more dangerous than the one of 2007-2009. The U.S. Fed would be almost certain to embark on a fresh round of bond buying, known as quantitative easing, to keep financial markets highly liquid and hold interest rates low.
The refusal of Western economies to acknowledge their shortcomings leading to the 2008 global economic meltdown suggests that Asian economies are well advised not to heed the International Monetary Fund's call to channel their funds into Europe, says this editorial. It says poorer countries now can avoid the trap South American nations fell into when taking the advice of developed nations in the 1970s. Shanghai Securities News (06/12)
2. Chinese official sees 2nd-quarter GDP gain below 7%
The gloomiest forecast yet for China's growth this year was issued in published remarks by Zheng Xinli, deputy head of the China Center for International Economic Exchanges, a government think tank. Zheng said in the overseas edition of the People's Daily that the annual rate of GDP growth may dip below 7% for the second quarter unless economic data improve markedly in June. Reuters (06/13)
3. China trims key interest rates in market-lifting move
In the face of a cooling economy domestically and the far-from-resolved eurozone crisis, the People's Bank of China lowered its one-year lending and deposit rates by a quarter percentage point. Predicting at least one more reduction later in the year, Shen Jianguang, a Hong Kong-based economist with Mizuho Securities Asia, said that data to be released over the weekend by China "must be very weak and inflation must have eased sharply." The move, the first rate cut since 2008, caught analysts by surprise and helped to lift global markets Thursday. Reuters (06/07) Xinhuanet.com (China) (06/07) Wall Street Journal (Asia), The(06/07) Bloomberg (06/07)
4. China's banks are expected to continue to accelerate lending pace
Loosening by China's central bank is taking hold, with bank lending in May up sharply from the previous month. Slow domestic demand amid easing inflation cleared the way for the People's Bank of China to allow more aggressive lending, even as the Beijing government proceeded with several measures of modest stimulus. Analysts say they expect another lending pickup in June. Reuters (06/11) Wall Street Journal, The (06/11) Caijing (06/11) Xinhuanet.com (China)(06/11)
5. Some Asian ratings may fall due to Europe's debt crisis
Debt ratings for some Asian economies may be jeopardized by the European sovereign debt crisis, Fitch Ratings says. Fitch cites heavy external-funding needs and poor balance sheets for the linkage, which could affect Sri Lanka, India and Indonesia. Korea Herald (Seoul), The(06/12)
6. China steps up, broadens foreign investments
China is pursuing an ever more aggressive but opaque investment strategy overseas, with at least six arms buying up securities and assets and moving prices globally. Financial Times (tiered subscription model) (06/11)
7. Dimon expresses regret at Senate hearing
Questioning of JPMorgan Chase Chief Executive James Dimon largely divided along party lines in a Senate hearing, with Dimon reiterating opposition to parts of the Dodd-Frank financial overhaul, including the Volcker rule. Dimon again expressed regret over the bank's recent losses and said he supported stiffer capital requirements. As for the losses, he said it was a matter of traders poorly understanding the risk involved and managers' "ineffective" handling of the traders. Washington Post, The (06/13) Wall Street Journal, The (06/13) CNBC (06/13)Los Angeles Times (tiered subscription model) (06/13) Forbes (06/13)
8. China's consumer price index signals inflation is subsiding
China's consumer price index in May indicated a 3.0% pace of inflation, down from 3.4% the previous month, as food prices moderated and demand slowed. Meanwhile, the producer price index was down 1.4% as commodity prices eased. Xinhuanet.com (China) (06/09) Forbes(06/08)
9. China's strong May trade surplus contrasts with domestic slowdown
China's May exports surged 15.3% from the year-earlier figure, easily topping analysts' forecasts and suggesting that global economic ills, principally in Europe, have yet to touch China. However, industrial output for the month and retail sales came in lower than expected. With the robust export performance, "the key to securing a soft landing pivots on reviving domestic demand, and that will necessitate more stimulus, but it will be more measured than in 2008 and monetary policy won’t be eased excessively," observed Sun Junwei, a Beijing-based economist with HSBC Holdings. Australian (subscription required), The (06/11) Bloomberg(06/10) Financial Times (tiered subscription model) (06/10)
10. Private equity groups look at U.S.-listed Chinese companies
Many of the more than 400 Chinese companies with U.S. listings have become prospective targets for private equity funds. However, the "appetite is there ... the price isn’t right," said Richard Campbell-Breeden, head of M&A in Asia at Goldman Sachs. Financial Times (tiered subscription model) (06/11)
Air-force pilot Liu Yang and two male astronauts blasted off at 6:37 p.m. Beijing time ahead of the country’s first manned orbital docking with the Tiangong-1, or “Heavenly Palace” module, according to a live broadcast on China’s Central Television. They will work on the module for about a week.
Chinese state media have touted Liu’s accomplishments over the past week, framing her selection as part of the country’s broader push to expand its space program while other nations cut back. The launch brings China a step closer to its goal of operating a permanent manned space station and putting a person on the moon by 2020.
Liu has 1,680 hours of flying time and is the deputy head of a flight unit in the People’s Liberation Army Air Force, Xinhua reported yesterday. She was recruited to be a potential astronaut in 2010, the news agency said.
China sent its first man into orbit and conducted its first spacewalk decades later than the U.S. and Russia. The U.S. ended its three-decade manned space-shuttle program last year and now has no manned spaceflight capability.
“China is ready to have international cooperation, including with the U.S. side, in the space program,” Foreign Ministry spokesman Liu Weimin said yesterday. “The achievement China has made in its space program is the result of the Chinese people’s hard work and innovation.”
The U.S. plans to operate the International Space Station, a research laboratory that orbits about 240 miles above Earth, through 2020. In 2010, President Barack Obama scrapped plans to return astronauts to the moon, setting a goal instead of making a “leap into the future” of deep-space travel.
The computer, one of only a handful in full working condition, had been estimated to sell for about $150,000 at the auctioneer's sale of books and manuscripts.
The Apple computer, built by the company's founders Steve Jobs and Steve Wozniak, included the original cassette interface, operating instructions and BASIC computer language user's manual. But like all Apple 1's, it did not come with a monitor or power supply.
Two bidders competed for the machine, the first compact computer to allow casual users to type on a keyboard and operate basic programs. An anonymous telephone bidder prevailed for a final cost of just under $375,000 including commission.
The Apple founders created the personal computer in 1976 and presented it at a Palo Alto computer club, but there were few takers at the time. Paul Terrell, owner of a retail chain called Byte Shop, placed an order for 50 of the machines and sold them for $666.66 retail - once Wozniak and Jobs agreed to assemble the circuit boards rather than offer them as kits, Sotheby's said.
The pair then produced 150 more and sold them to friends and other vendors. Sotheby's said fewer than 50 original Apple 1s are believed to survive, with only six known to be in working condition.
Other highlights of the sale, which took in a total of $2.67 million, included an unpublished F. Scott Fitzgerald story, "The I.O.U.", which sold to an unidentified US institution for $194,500, far above the $75,000 pre-sale estimate, and an autographed letter from Oscar Wilde calling his work, "The Ballad of Reading Gaol", his swan song. It fetched $134,500, or more than three times the estimate.
Another unpublished Fitzgerald story, "Nightmare", from the early 1930s, doubled its pre-sales estimate and sold for just over $80,000, while artist Andy Warhol's illustrated book from 1954, "25 Cats Named Sam and One Blue Pussy", also doubled its estimate, selling for just under $60,000.
As members of our editorial team noticed today, the Instagram app now notifies you when Facebook and Twitter friends join the service. Foursquare already does the same thing. But this integration could swiftly kick up activity, and by extension user numbers, on the photo sharing service with its estimated 50 million subscriberes. Signs of a Facebook-Instagram alliance started in early January, well before Facebook bought the app-maker, when Instagram started displaying full-size photos on Facebook profiles when both accounts were linked. By comparison, plush and expanded interactive cross-posts was an addition Twitter only just added to its Facebook display.
The Facebook-Instagram relationship is increasingly well watched. It has the attention of the Federal Trade Commission, which wants a closer look at the deal as a routine check performed on acquisitions of over $68.2 million. It was also under scrutiny from the SEC in Facebook's pre-IPO days, and in the weeks since, questions have been raised about Instagram's real value as Facebook's share price slides. Facebook's relationship with Instagram may have been complicated by the puzzling launch of its own Facebook Camera app after the acquisition announcement, but it seems the two are committed to being friends
ComScore Study: Pinterest Still Booming, Android And iOS Nab RIM's Market Share
ComScore's "State of the U.S. Internet" report was previewed yesterday, and TechCrunch got an early look. Here are some highlights from the study.
Pinterest continues to hold the title of fastest growing social network, swelling 4377 percent between May 2011 and May 2012. When it came to driving sales online, Pinterest users are more frequent and more generous in their online spending than members of other social networks, a trend that Shopify also spotted earlier this year.
As mobile user numbers spike, comScore expects mobile race ahead of desktop users by 2014. This would follow a trend in countries like India where, with mobile adoption is surging well ahead of desktop access, mobile users are expected to overtake desktop users by the end of this year.
In the U.S., Android increased its slice of the market from 34.8 percent to 51 percent. Apple also grew, from 25.5 percent to 30.7 percent. RIM, Microsoft and all other OS makers made space for that growth--dropping from 27.1 percent to 12.3 percent, 7.5 percent to 3.9 percent and 5.1 percent to 2.1 percent between March 2011 and 2012.
ComScore's full report is expected out next week. In the meanwhile, for charts showing these and other trends, stop by TechCrunch.
Tablet News Expected At Microsoft's Monday Event
Microsoft is holding an event in Los Angeles on Monday, June 18. Microsoft has made no mention of what the event will be about, but a few outlets have insider tips that a tablet of some kind--a Microsoft-manufactured iPad challenger or a Kindle Fire competitor (remember that deal Microsoft made with Barnes & Noble earlier this year?)--is on the way. It's not just the iPad and Kindle Fire that Microsoft will be joining, as there have also been rumors that an Android-flavored Google tablet made by ASUS will be ready for Google's I/O show in late June.
Microsoft has been testing Windows RT, a version of its Windows 8 OS for ARM processors in tablets. A new tablet will fit well with another other new product, SmartGlass, which Microsoft announced recently at E3, designed to seamlessly connect its computers and gaming platforms with smartphones and tablets.
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Twitter trends have so long been available for more than 150 locations in addition to the worldwide list. Now Twitter trends are getting more personal.
Twitter has changed its algorithms to tailor trends based on the user's locations as well as who they follow on Twitter. The tailored trends will be the default trends displayed to users, but if they wish to see a more general list of trends they can change their location on the Twitter website.
The new Twitter tailored trends have gradually started rolling out to users from Tuesday.
When the tailored trends are made available to a Twitter account, the user on logging in will get a message saying, "Trends tailored just for you. Trends offer a unique way to get closer to what you care about. Trends are tailored for you based on your location and who you follow." Users will have the option to either keep tailored trends or to retain the existing style of trends.
Now Twitter trends are getting more personal with the newly launched tailored trends.
Please find our latest investment commentary regarding the implications of record low Treasury yields: http://www.aviancecapitalpartners.com/pdf/record-low-ylds-june12.pdf
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