S&P may cut G20 nations as of 2015 on health costs

(Reuters) - Ratings agency Standard & Poor's warned it may downgrade "a number of highly rated" Group of 20 countries as of 2015 if their governments fail to enact reforms to curb rising health-care spending and other costs related to aging populations.

Developed nations in Europe, as well as Japan and the United States, are likely to suffer the largest deterioration in their public finances in the next four decades as aging populations strain social safety nets, S&P said in a report published on Monday.

"Steadily rising health-care spending will pull heavily on public purse strings in the coming decades," S&P analyst Marko Mrsnik wrote in the report. "If governments do not change their social protection systems, they will likely become unsustainable."

If no reforms are adopted, health-care-related credit downgrades would likely start within three years, eventually leading to an increase in the number of junk-rated countries as of 2020, the study showed.

Health care will likely be the fastest-growing expenditure for developed countries, which already have high social protections and rapidly worsening demographic profiles. For example, Japan's population is expected to decline by 30 percent by 2060, with two out of every five people turning 65 or older, according to official data.

Emerging market countries, especially in Southeast Asia, have a little more room to maneuver due to more favorable demographic dynamics and economic growth, S&P said.

Demographics will not be the only factor driving up health-care costs. More expensive new technologies and broader treatment coverage may account for as much as two-thirds of the projected increase in health-care spending, according to a study by the International Monetary Fund cited by S&P.

REFORMS

Pension system reforms alone would not be enough for G20 countries, S&P said in the report.

If legislation were enacted to contain future increases in age-related spending without also tackling health-care spending, the results would be only slightly less severe than under a no-policy-change scenario.

"The probable increase in projected health-care costs alone is so substantial that the impact of these reform efforts would not be enough to meaningfully reverse the resulting credit deterioration," S&P said.

Reforms to contain age-related spending coupled with efforts to balance budgets by 2016, on the other hand, would be enough to offset rising health-care costs by 2050, according to S&P.

"The results of this scenario point to overall stabilization of our hypothetical sovereign ratings," S&P said, noting, however, that the number of ratings in the lower investment-grade categories would still increase.

Euro zone ministers reject private bondholders' Greece offer

(Reuters) - Euro zone finance ministers Monday rejected as insufficient an offer made by private bondholders to help restructure Greece's debts, sending negotiators back to the drawing board and raising the threat of Greek default.

At a meeting in Brussels, ministers said they could not accept bondholders' demands for a coupon of four percent on new, longer-dated bonds that are expected be issued in exchange for their existing Greek holdings.

Banks and other private institutions represented by the Institute of International Finance (IIF) say a 4.0 percent coupon is the least they can accept if they are going to write down the nominal value of the debt they hold by 50 percent.

Greece says it is not prepared to pay a coupon of more than 3.5 percent, and euro zone finance ministers effectively backed the Greek government's position at Monday's meeting, a position that the International Monetary Fund also supports.

.... I hate to track this but I have to.... Praveen Kumar

Macroeconomic and Monetary Developments: Third Quarter Review 2011-12

Overall Outlook

While growth outlook weakens, inflation risks remain

• The Growth outlook has weakened as a result of adverse global and domestic factors. However, inflation and expectations of inflation remain high and upside risks emanate from exchange rate pass-through, revisions in administered prices and higher-than-expected government revenue spending. Consequently, monetary actions will need to strike a balance between risks to growth and inflation.
• Growth in 2011-12 is moderating more than was expected earlier. The business climate has weakened. The slack in investment and net external demand may keep the pace of recovery slow in 2012-13.
• While in the short run, moderating inflation will provide some space for monetary policy to address growth concerns, in the absence of structural measures to address supply bottlenecks, this will be, at best, a temporary respite. In addition, the expansionary fiscal stance has emerged as an upside risk to inflation.

Global Economic Conditions

Global growth moderates, financial market stress rises

• The global economy seems to be headed for another downturn after just three years. The recovery is likely to lose traction due to the continuing euro area debt crisis. As fiscal austerity progresses, the euro area could enter into a recession. With growth decelerating even in emerging and developing economies (EDEs), the spillovers from euro area are likely to pull down global growth.
• An adverse feedback loop between bank and sovereign debt brought euro area closer to contagion across the region. Tightening credit conditions, rising risk premia, deleveraging, weakening growth in the euro area are keeping global financial markets under stress. Going forward, further softening in commodity prices on the back of weaker global growth is likely in 2012-13. However, upside risks to the oil price remain, including from recent geo-political uncertainty.

Indian Economy

Output

Global linkages reinforce domestic factors to slow down economy

• Agricultural prospects remain encouraging but moderation is visible in industrial activity and some services. Industrial slack has emerged as export and domestic demand has decelerated. A strong co-movement between domestic and global IIP series is observed. The RBI survey shows significant growth in new orders for some industries, but flat capacity utilisation in Q2 of 2011-12.
• Growth in 2011-12 is likely to moderate to below trend given the external conditions, dampened investment demand and prevailing high level of inflation. Growth outlook will depend on global conditions and domestic policy reforms

Aggregate Demand

External and investment demand may drag growth

• Growth has been impacted by lower external and investment demand which may also act as a drag during 2012-13. There has been a sharp decline in planned corporate fixed investment since H2 of 2010-11 and this trend has accentuated further in Q2 of 2011-12.
• Private consumption continues to moderate. There has been some slackening of corporate sales growth, reflecting a gradual waning of demand. Available early results for Q3 of 2011-12, however, indicate healthy sales growth.
• The central government’s deficit indicators are under duress due to higher subsidies and lower tax collections. Fiscal slippages during 2011-12 may complicate the task of aggregate demand management. Fiscal reforms, including the Direct Tax Code and the Goods and Services Tax are, therefore, needed to contain deficits in 2012-13.
• With a widening current account deficit (CAD), larger fiscal spending could affect growth and stability in the economy. The mounting revenue deficit is already putting fiscal position under strain and impacting the Government’s ability for capital spending. There is need for budgetary solutions to growing subsidy commitments and to rebalance public spending from consumption to investment, in order to enhance the potential growth rate of the economy.

External Sector

CAD risks have amplified as capital flows moderate

• Early indicators suggest that the current account came under increased pressure during Q3 of 2011-12. Notwithstanding rupee depreciation, exports decelerated but import demand remained strong, with inelastic demand for oil and rising gold imports. Upward risks to CAD have become more pronounced with likely moderation of software earnings.
• As capital flows also moderated since August 2011, financing pressure on the CAD translated into exchange rate pressures. Currencies of other EDEs running CAD came under similar pressures. Following the revival of equity flows in January 2012, exchange rate pressures have reduced somewhat.
• The composition of capital inflows has shifted in favour of debt, with a rise in the proportion of short-term flows. Vulnerability indicators have weakened moderately, though the net international investment position has improved. Going forward, there is need to reduce dependence on debt flows by encouraging renewed equity flows through acceleration of  policy reforms aimed at improving the investment climate

Monetary and Liquidity Conditions

Monetary growth keeps pace even as money market liquidity tightens

• Money market liquidity tightened   significantly   since   November 2011 partly due to dollar sales by RBI. However, monetary growth has kept pace with projections, on account of a rising money multiplier. The liquidity stress was handled by the Reserve Bank by injecting liquidity through open market operations, including repos under the LAF.
• Credit growth slowed below the indicative projection due to demand as well as supply side factors. Demand for credit weakened in response to slack in real   activity. Supply also slowed down with rising risk aversion stemming from deteriorating macroeconomic conditions and rising non-performing loans.
• Monetary policy has been significantly tightened since February 2010 with an effective increase of 525 bps in policy rates and a 100 bps increase in CRR. Factoring in increased downside risks to growth and the expected moderation in inflation, the policy rate was kept on hold in December 2011. The trajectory of the monetary cycle ahead will be shaped by the evolving growth-inflation dynamics.

Financial Markets

Financial markets come under pressure from global spillovers

• Global spillovers and macroeconomic deterioration resulted in pressures on the equity and currency markets. The sharp depreciation of the rupee during August-December 2011 contributed to a drop in foreign equity inflows which in turn, further weakened the rupee. The sudden stop in equity inflows also impacted investment financing. The impact was compounded by poor resource mobilisation in the primary capital market.
• The stress in the financial markets was mitigated by policy measures that included infusion of rupee and dollar liquidity. As a result, the rupee exchange rate appreciated and equity markets recovered in January 2012.  Call money rates have largely remained within the interest rate corridor and spikes were effectively contained.

Price Situation

Inflation is trending down, but upside risks remains significant

• Inflation is moderating led by sharp decline in food inflation and is broadly in line with the 7 per cent projection for March 2012.
• Primary food inflation declined sharply reflecting seasonal fall in vegetable prices and high base. However, as protein inflation continues due to structural demand-supply imbalances, the decline is expected to be short-lived.
• Inflation in non-food manufactured products remains persistently high, reflecting input cost pressures, partly resulting from the rupee depreciation that has offset the impact of softer global prices of some commodities.
• Upside risks to inflation persist from insufficient supply responses, exchange rate pass-through, suppressed inflation and an expansionary fiscal stance.

As updated on rbi website.

Finance Ministry wants RBI to cut rates: report

REUTERS - The Reserve Bank of India (RBI) should cut policy rates to give a push to sectors which are interest rate sensitive, the Business Standard newspaper quoted a Finance Ministry official as saying on Monday.

The Finance Ministry wants the Reserve Bank of India to switch its policy stance with growth concerns occupying centre stage and inflation showing signs of moderating, the report said.

Monetary tightening had hurt growth and the central bank should have paused earlier than December 2011, the report quoted the unnamed official as saying.

The RBI will review its policy on Tuesday. None of the 22 economists polled by Reuters last week expect it to cut rates.

Upcoming : Technical views on Reliance- to be updated in evening hrs

 

IN 14 TRADING SESSION FII BOUGHT USD 1 BILLION

Greek Debt Talks Halted, Appear Close to Collapse

Talks between Greece and its creditor banks aimed at avoiding a disorderly default broke down on Friday, with Greeks warning of disastrous results if a bond swap deal is not reached soon.
Athens needs an agreement, effectively seeing creditors voluntarily giving up a lot of their promised returns, to slash its debt to more sustainable levels and convince the European Union and International Monetary Fund  to keep lending it cash.

In what some analysts said may be a high stakes poker game at the last stretch of intense negotiations to convince private bond holders to voluntarily take some losses to avoid the worst, both sides appeared to be digging in their heels.

A Greek default would be far worse for both Greece and the banks than reaching some form of deal.

"Discussions with Greece and the official sector are paused for reflection," said the Institute of International Finance (IIF), which leads talks for private bond holders.

"Unfortunately, despite the efforts of Greece's leadership, the proposal put forward ... has not produced a constructive consolidated response by all parties."

Greek debt swap negotiators said earlier they were less optimistic about reaching an agreement to avert a disorderly default, warning failure to reach a deal would be disastrous for Greece and Europe.

"Yesterday we were cautious and confident. Today we are less optimistic," said a source close to the Greek task force team in charge of negotiations.

"It is important to remind all parties that the consequences of failure would be catastrophic for Greece and the Greek people, Europe and Europeans," the source said on condition of anonymity.

Some analysts said the statements may reflect negotiating tactics by both sides in the final stretch of the race to clinch a deal.

"I'm sure that's exactly what it is. You have a situation where there was an initial agreement to write off at one level, then it's a write-off at a higher level and I'm sure there's some people looking at it saying we can get a better deal," said Gary Jenkins, director of Swordfish Research.

"When you're dealing with a sovereign, you don't have a huge amount of tricks up your sleeve, because if they choose not to pay you there's not an awful lot you can do," he added.

Talks Pause for Reflection

The IIF's Charles Dallara held meetings in Athens on Thursday and Friday and Finance Minister Evangelos Venizelos said talks would most likely resume next Wednesday because there were issues that needed to be worked out but it was not immediately clear what the stubling blocks were.
"There is a meeting next week and we'll make every effort to succeed," the source close to the Greek side said.

Greece needs a deal to stay afloat when a 14.5 billion euro major bond comes due March 20 of and the bond swap paperwork alone will take at least six weeks.

EU, IMF and ECB inspectors, who arrive in Athens on Tuesday for talks on a new, 130-billion-euro rescue plan for Greece, also want to see an agreement on the debt swap before they agree on the bailout.

Any agreement with private bondholders on debt reduction should be in line with the terms decided by euro zone leaders on October 26, the EU Commission said on Friday. 

Under the terms agreed in October, Greek privately held debt would be reduced by half, so that, together with structural reforms, the overall debt to GDP ratio of Greece would fall to a sustainable 120 pct in 2020 from 160 percent now.

A government spokesman said earlier that Greece had not decided yet on whether it will submit a law to force creditors into the bond swap, denying a Greek media report that it would do so by Monday.

Three senior euro zone sources told Reuters on Thursday that Athens was mulling such a bill, which would make a debt restructuring binding for all investors once a certain percentage agreed.

Without using so called collective action clauses, the participation rate in any debt swap deal could be smaller than needed because many hedge funds would profit more if Greece defaulted because they would get paid in full from insurance.

German Foreign Minister Guido Westerwelle will arrive in Athens on Sunday for a meeting with his Greek counterpart Stavros Dimas, as part of a flurry of diplomatic contacts.

Greece will test markets on Jan. 17 with an auction 1.25 billion euros ($1.59 billion) of three-month T-bills to fund the rollover of a 2 billion-euro issue that matures on Jan. 20. T-bills are Greece's only source of market financing.

DOW JONES (TECHNICAL VIEW AS OF 11 JAN 2012)

Two and half months back, I have quoted that Indian market will remains a bigger under performer compared to US indices. We have seen the expected fall in equity price in India. Meanwhile US indices kept on shooting up. I believe that whole world is experiencing some great changes.

Dow Jones has almost traveled nearly 1000 points from its November 2011 lows. Right now this index is showing great strength and there is no doubt about that. On daily chart we have some reverse H&S pattern with nick line near 12300. Somehow we kept on trading at these levels from past 7 trading days. It’s true that the target indicated by those reverse H&S pattern is as high as 13200+ levels. Are we going to see that kind of rise? May be yes but we cannot ignore the development on RSI.

Considering reverse H&S pattern and RSI, I feel that we have a breakout point at 12600 levels. If fall has to come then we are on perfect time and perfect levels.

Crossover of 12600 will guide Down Jones towards 13200-13400 levels. I cannot dare to short above 12600 levels. 

Why I am not betting for that rise?

It is itself great to see that it is already trading well above 200 days moving average and giving a feeling like Bull Run. Fundamentals are not justifying for rise immediately. With so much of concerns, it’s really hard to believe.

My conclusion is - if should break in just 3-4 trading sessions more. Close below 12200 will be first sign of some profit taking.

In my next articles I will explain the things based on wave theory.

Thanks & Regards,

Praveen Kumar

NIFTY - Technical views as on closing 11 Jan 2012

Two days back I have updated that it cannot be good to hold short if NIFTY spot manages to stay above 4801 levels.

Next obvious question is about the magnitude of the rise. We are just on the verge of 50 days moving average which is running near 4877-4876. Charting suggests that we will see stiff technical resistance near those levels. Thats the reason I have quoted tomorrow that it may not be easy for NIFTY to move beyond 4880.

From the levels of 4876- two possibilities arises. 

 Possibility 1 (Bullish) : If we manage to stand above 4880 then we can expect rise to be extended towards 4940-4949, which is 100 days moving average and the higher end of gap fill which is indicated in the given chart. In the bullish possibility, Nifty must break 4880 (this condition is to be applied above 4880 only) and then try to hit 4940-4949. We may expect consolidation in those ranges before shooting upwards with great denial for any fresh fall. 

 Possibility 2 (Bearish) : This possibility will arises on the failure of 4880 or you can say on the failure of bulish possibility. We are already trading close to 4880. Charts suggests that to be on safer side one should opt this possibility only when Nifty sustain below 4801, which is nothing but previous breakout point. We may see some consolidation below 4801 and then a fall. Major support will run near 4680 levels which can be a concluded target.

Its still hard to believe the beginning of sharp rise before quarterly result. Let us see. Today is also an important day.

If you want to know more details then mail me at praveen@viecapital.com

Thanks,

Praveen Kumar

ANANTRAJ - TECHNICAL STUDY for short term

This stock has moved higher after some better accumulation. Technicals are suggesting that it may advance further. In a rising index for short to medium term, this stock may try to hit levels near 60. One can use any dip to buy this stock.

Support - 50/48/46

Resistance - 54/58/60

NIFTY - 10 JAN'12- VIEWS BASED ON HOURLY CHART

The day it went above 4700, I have updated that the trading range of 4700 to 4800 is going to give us pain of choppy moves. We cannot speculate in this range. I want a real and clear cut break of the range of 4800 to 4680. Nifty has placed itself beautifully before earning seasions. As trading range is narrow so I chosse hourly study to get direction.

Trend line are suggesting me that if Nifty trade below 4720 today then we may see the test of 4680 or any nearer levels. In alter Sense on higher side, Cross over of 4801 may give you 30-40 points on positive side.

Nifty has not yet crossed 4800 levels. As long as Nifty sustain below 4800 we can just expect stiff resistance at those higher levels and it may see frequent dip from higher levels. If sustain below 4720 then it should fall. Well, but not really falling?

We are at the zone of "Make or Break".

Support - 4720/4680/4630

Resistance - 4783/4801/4848

Wait for my next post about daily chart.

Thanks,

Praveen Kumar

INR vs USD

Surprisingly, despite the sharp decline in the Dollex indices, net FII outflow ($380 million) from the Indian equity market was negligible in 2011. This was in contrast to 2008 when the underperformance of the Dollex indices (61 per cent dip in Dollex 30 compared with the 52 per cent dip in Sensex) coincided with net FII outflow of as much as $13,000 million.