Apr 18, 2011

S&P Warns on US Debt

April 18, 2011

Equities are starting the week down and treasuries are weak after rating agency S&P hinted at a possible downgrade of US credit by issuing a negative outlook due to rising gas prices and slower demand from China. David Beers of S&P’s Sovereign Rating Group warned that the possibility of a downgrade over the next two years rose to 1 in 3. “We believe there is a material risk that US policy makers might not reach an agreement on how to address medium and long-term budgetary challenges by 2013. If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer AAA sovereigns.”

Citigroup reported better than expected earnings this morning and is bucking the trend, rising over 1% this morning. Eli Lilly beat sales and earnings estimates for the first quarter, however, the company’s top-selling drug comes off patent in October. Halliburton beat earnings in spite of a charge taken due to the unrest in Lybia.

The central bank of China increased its reserve requirement by 50bps to 20.5%, the 10th increase in the past 15 months.

The Chairman of the Financial Stability Board, Mario Draghi, warned that the popularity of commodity based ETFs is reminiscent of what happened in the securtization market before the crisis.

Colombian central bank president Jose Dario Uribe said the nation’s GDP may exceed 5.5% on top of 2010’s 4.3% increase.

The Economist is reporting that growth in India may have exceeded that of China last year, an event that went unnoticed because India reports GDP differently than China. Initial reports showed China growing at 10.3% and India 8.3%, but the IMF is now estimating that India’s GDP grew by 10.4%.

APAC markets closed strong last night as the Shangai rose 0.3%, the ASX 200 and NZX were up 0.4%, the Sensex 1.2% and the Nikkei up 0.1%. The Kospi fell 0.5%.

Have a great Monday


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