The World Market on Monday

Despite Moody’s, another major credit rating agency, standing by its top rating of AAA for the U.S, the Dow Jones Industrial Average suffered another worse day on Monday tumbling nearly 635 points, or 5.5 percent, to 10,810. Though the Moody’s cautioned it could downgrade the U.S. if it doesn’t cut its deficit, “but it is too early to conclude that such measures will not be forthcoming.”

On the other hand Standard & Poor’s hit another nail when it downgraded the credit ratings of mortgage lenders Fannie Mae, Freddie Mac and other agencies linked to long-term U.S. debt. Fannie and Freddie own or guarantee about half of all U.S. mortgages. Their downgrade could mean higher mortgage rates for consumers.

The Detroit News reported, “It was the worst since Dec. 1, 2008, and the sixth-steepest ever. Stocks have lost 15 percent of their value in just 21/2 weeks. For the first time the market closed below 11,000 since November 2010.

Stocks of all sectors whose profits are closely tied to the strength of the economy fell sharply. In the S&P 500 energy stocks fell 4 percent and financial stocks fell 4.9 percent to their lowest level since July 2009.

The US auto industry is witnessing another round of red. On Monday, Ford Motor Co. stock was down nearly 8.4 percent; General Motors Co. dropped almost 7 percent.

The Asian and European markets followed the suit as stocks continued to fall in trading early today in Japan, Australia, New Zealand and Hong Kong. The main stock index in South Korea fell almost 4 percent and in Japan more than 2 percent on Monday. Germany and France were down 5 percent and 4.7 percent respectively.

The flight of capital to safer havens like gold was amply visible on Monday as the yellow metal rose more than $70 per ounce, to record $1,721. It was the first time gold was above $1,700.

Markets on Tuesday

The Stock market meltdown continued on Tuesday with the Sensex opening 500 points down its yesterday’s closing of 16749.38 points. The Nifty opened at 4970.75 slipping below 5,000-mark for the first time since 2010.

Though the market remains deeply volatile, it is showing recovery with the RBI getting into firefighting mode post US downgrade. The 30-share benchmark index Bombay Stock Exchange (BSE) Sensex continues to remain below 17000 but has slightly recovered from its opening low. The Nifty has only slightly recovered to trade just beyond 5000.

Today at 09:15 am, Hong Kong was trading 6.7 per cent lower, Tokyo was down 4.4 per cent, Seoul was trading 3.01 per cent down and Shanghai lost 1.1 per cent.

RBI response to save Indian Market

The Reserve Bank of India has assured that it will respond quickly to any liquidity outflow to prevent excessive volatility in interest rates and exchange rates. On Monday RBI issued a statement assuring that the impact of the recent downgrade will be limited on the Indian economy.

RBI said in a statement, “In the worst phase of the recent global financial crisis, the economy grew by 6.8%, suggesting high resilience emerging from domestic factors. While downside risks to growth may have increased in the wake of global developments, they are likely to have limited impact”.

Though many experts believe that the situation has at least partially changed. moneycontrol.com quoted CNBC-TV18’s Gopika Gopakumar, “In March 2009, 19% of India’s total foreign debt was funded by short-term debt. Now, short-term debt accounts for 21% of total overseas debt. Also, fiscal deficit now stands at 4.6%, not counting state debt and mounting state PSU debt. Pre-crisis fiscal deficit was a smaller 2.6% likewise growth is slower than it was pre-crisis and inflation is a bigger problem.”

 

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