Expressing surprise over Standard & Poor’s threat to downgrade India’s credit rating, industry bodies have termed the global agency’s affirming its negative outlook on the country as unfortunate and harsh.

Standard & Poor’s (S&P) has warned that it may downgrade India’s sovereign rating to junk grade if the government fails to pursue reforms and check deterioration in fiscal and CAD.

“S&P’s warning of downgrading India to junk status has come as a surprise. At this juncture when signs of improvement are on the horizon, there is a high likeliness that the problems would soon be tackled,” industry chamber Ficci said.

It said the set of macro data released recently gives clear indications of return in buoyancy in the economy. >> Read More

A bad day on Europe’s stock markets has seen the German Dax slide to its lowest level since last December.

Bundesbank head Jens Weidmann’s warning that the European recovery could last a decade helped to drive shares down across the region. There was also a rumour that Germany’s credit rating was at risk — which surfaced this morning without ever being substantiated.

Here’s the damage:

FTSE 100: down 60 points at 6244, – 0.96%

German DAX: down 179 points at 7503. -2.34%

French CAC: down 86 points at 3599, -2.35%

Spanish IBEX: down 145 points at 7803, -1.8%

Italian FTSE MIB: down 149 points at 15383, -0.96%

And in the foreign exchange markets, the euro has fallen by 1.5 cents against the US dollar, to $1.303.

• In our opinion, recent changes to the functioning of certain oversight institutions may further undermine Hungary’s institutional effectiveness.
• We are revising our outlook on our ‘BB’ long-term sovereign credit rating on Hungary to negative from stable and affirming the ‘BB/B’ long- and short-term sovereign ratings on Hungary.
• The negative outlook indicates the potential for a downgrade if a deterioration of Hungary’s policy framework weakens confidence and medium-term economic growth prospects, or significantly raises financing costs and leaves Hungary exposed to diminished capital inflows.
• We are also revising to negative from stable our outlooks on the ‘BB’ long-term issuer credit ratings on the National Bank of Hungary. >> Read More

Deep reservations in some European states about using the euro zone’s bailout fund for bank recapitalization could ultimately mean the plan is abandoned, the head of the fund said.

Klaus Regling, the head of the European Stability Mechanism (ESM), told Wirtschafts Woche magazine he was not able to say with certainty that the ESM would be used for this purpose.

“There are several states where enthusiasm for direct bank recapitalizations is very limited,” he said, noting it needed unanimous backing. “I can therefore not say with 100 percent certainty that we will have this instrument.”

Euro zone leaders agreed last June to allow the ESM to directly recapitalize banks to stop the rescue of failed banks from piling debt on individual countries. >> Read More

Rio Tinto has been put on notice for a possible credit rating downgrade because of concerns over rising debts, reinforcing the need for the Anglo Australian mining group to cut costs and make significant asset disposals this year.

Standard & Poor’s on Tuesday said there was a one-in-three chance Rio could lose its prized single-A credit rating in the next 12-18 months if it did not bolster its balance sheet.

The warning came as Ivan Glasenberg, chief executive of Glencore, the commodities trader that is buying Xstrata, said global mining companies had “really screwed up” by ploughing billions of dollars into projects that did not generate returns for shareholders.

“We’ve always been wanting to keep building and keep putting the cash which we generate into new assets,” Mr Glasenberg told the BMO Capital Markets metals and mining conference in Florida. “That’s what we’ve got to stop doing as a mining industry. We’ve got to learn about demand and supply.” >> Read More

Osborne’s statement was prepared well in advance, which means Moody’s action was not only prepared and distributed long ago but it got the blessing of both the UK government and Goldman Sachs. And why not: so far it has achieved precisely what it was intended to: crush the Pound. The next question: when does talk of GBP-EUR parity begin?

 

 

Moodys has just downgraded Britain’s credit rating from AAA to Aa1

 

The Chancellor George Osborne released the following statement after the UK lost its AAA credit rating with agency Moody’s:

 

Tonight we have a stark reminder of the debt problems facing our country – and the clearest possible warning to anyone who thinks we can run away from dealing with those problems.

 

Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it. >> Read More

The UK could escape the embarrassing fate of losing its prized triple-A credit rating, writes James Knightley of ING, following better than expected public finances data (see below).

This may be perceived as lowering the threat of an imminent AAA rating downgrade from one of the major ratings agencies and so is going to be a short term positive for sterling.

But George Osborne still faces a difficult decision at next month’s budget, writes Capital Economics:

With borrowing still very high and fiscal progress appearing to have ground to a halt, the dilemma faced by the Chancellor at next month’s Budget over whether to tighten fiscal policy, or loosen and go for growth, remains acute.

• The €3.9 billion of hybrid securities, the so-called Nuovi Strumenti Finanziarito to be issued by Banca Monte dei Paschi di Siena SpA’s (MPS) and subscribed by the Italian government by March 1, 2013, have intermediate equity content under our criteria.
• However, MPS’ recent announcement related to the investigation of potential losses on three structured transactions contributes to our view that MPS faces significant challenges to mitigate the impact on its financial and business profiles of risks arising from past decisions.
• We are lowering our long-term rating on MPS to ‘BB’ from ‘BB+’, and affirming our ‘B’ short-term rating. We are also lowering the ratings on all classes of MPS’ subordinated debt and preferred stock by one notch.
• We are maintaining our long-term rating on MPS and our senior unsecured and nondeferrable debt ratings on CreditWatch negative. We are placing the ratings on MPS’ junior subordinated debt and preferred stock on CreditWatch negative.
• The CreditWatch mainly reflects our view of the potential negative impact on MPS’ financial profile of the possible losses, which may be higher than initially anticipated, on the above-mentioned structured transactions. We are of the opinion that these potential losses reveal a risk of management weaknesses, and the CreditWatch also reflects the possibility we see that other sources of risk could be identified by the current investigation. >> Read More

A Greek default remains possible, according to Moody’s, with the international rating agency expecting the country’s economy to contract by 5 percent this year – against a government forecast of 4.5 percent – and for the recession to continue into 2014, too.

In its analysis on Greece issued on Wednesday, Moody’s argues that the risks that could sink the country’s economy and therefore its credit rating are still existent. These include the risks in the implementation of the second bailout program, exceptionally uncertain growth prospects, the political and social challenges the Greek economy is facing and the fact that the country’s debt is still considered unsustainable.

Although Moody’s acknowledges the improvement in the liquidity of the Greek economy, the banks’ entry into the recapitalization process and the government’s efforts to proceed with reforms, it concludes that the fragile social stability and the coalition government’s challenges could still see the country go bankrupt.

On the other hand, the head of the European Council, Herman Van Rompuy, added his voice to that of various European politicians in the last few weeks who have been expressing their optimism on Greece, saying on Wednesday that “the worst is behind us.”

Six months ago, the Sensex hovered at around 17,000. Today it is close to 20,000. In August 2012, fears of a downgrade for India’s sovereign credit rating loomed large. Early this week, Moody’s Investors Service retained its “stable” outlook for India. India’s macroeconomic fundamentals are still weak, with the government’s fiscal deficit for the current year estimated to be over 5.3 per cent of gross domestic product and the current account deficit touching the five per cent ofGDP mark. Yet, it is difficult not to acknowledge a positive mood in the government and take note of the manner in which it has handled what seemed like a hopeless situation.

Make no mistake about it. The crisis is far from over. Inflation continues to rule at an uncomfortably high level of around seven per cent if you consider wholesale prices and even higher, at over nine per cent, if you take into account the consumer price index. Investments are yet to pick up and industrial growth continues to remain low. But what has changed in the last six months is that the government has shown far greater determination to assess the situation, take decisions and attend to problems in a manner that was completely missing earlier. It is not just a mere coincidence that the change in the government’s response to the crisis happened at around the same time when Palaniappan Chidambaram took charge of the finance ministry on July 31, 2012. And the manner in which the new finance minister went about managing the situation is quite instructive. >> Read More