Market calm will return later this week: Dr. Adrian Foster, Rabobank

Dr. Adrian Foster, Asia-Pacific Head of Financial Markets Research, Rabobank, in a an interview with ET Now, gives his views on S&P downgrade on the US debt rating. Excerpts:-


What is your sense, because we are clearly seeing a panic sort of situation build across Asia post the S&P downgrade on the US debt rating?

Certainly its no surprise, I guess that investors are nervous and in fact we saw a very weak week across in equity markets certainly last week for million reasons which are - simmering debt tensions in Eurozone, of course with unsatisfactory debt ceiling debate conclusion in the US and of course these simmering concerns that were just the underlying as we mentioned that the US economy as well. Just go back to Friday the US payrolls report is quite an important release, (it) shows a 1,17,000 jobs in the month, shows 50,000 odd increase in reported jobs the two prior months. So I should think that is quite a significant release. It it tells us that the economy is not deteriorating further. It tell us that it is growing at around about the 2% rate. So there is a bit of a sell off there for market sentiment. Of course that has been overtaken by some page writing actions understandable that we are going to get market weakness today. I would be reluctant to “fading” that in the near term because a lot of people will be on watch to see how US markets open tonight and regional markets tomorrow will take their lead from that. That is going to be the first concrete sort of sign we get. But then back a little bit it is no secret that S&P had signaled $4 trillion debt reduction over the next 10 years and the debt ceiling debate delivered a 3.4 trillion, so clearly below where S&P has signaled it. A lot of people were actually looking for this S&P action, the timing always can provide a bit of a short term surprise but my guess is as we get later into this week we will find market calm returning and there will be some good investment opportunities. Low leverage is the key.

Also Read: India to pitch for rating upgrade

Do you think global central bankers currently are armed with enough liquidity and if the need be some of the big central bankers would step in?

It is very likely that. They shot a lot of bullets in the last couple of years with some of the massive balance sheet expansion that were seeing in the Feds from ECB. So they are not in a stronger position like they were like in 2007 and 2008. If indeed the situation did unravel to be in a so called global for GFC Mark II (Global Financial Crisis), we would be in a very very testing situations because central banks do not have to same scope to go extenuate balance sheet and fiscal situation is so much more stressed as well around the developed world. I do not think that we do end up with the GFC Mark II kind of scenario, as I see the tempo is largely set and very slow grinding recovery in the US for three to four years of disappointing growth rates. Challenge in Europe is clearly the challenge they have is political in terms of pushing through with austerity measures ultimately kicking in the can down the road is the only option that they have in Europe that translates to several years of very very weak growth there as well, so that is a sort of outlook that I have with several years of very actually lacklustre but ongoing growth.

Also Read: Australia, NZ, Nikkei, Hong Kong, Taiwan and Singapore stocks fall on US ratings cut



What about the G-7 because just a short while back the statement issued by themselves that they will take appropriate action and will be in close touch with the central bankers as well. What options as the G-7 had apart from Forex intervention which is something they have already indicated?

Well G-7 intervened on the long side. Japan back after the Japanese earthquake but I noticed their absence in the recent part of interventions from Bank of Japan, my guess is G-7 has been sidelines in the last couple of years by the G20 and here is an opportunity just to get itself in the public domain again and really offering words of support really just playing a role in supporting market confidence to the extent that they can.