Market slide to continue today, but no bloodbath seen

Today is the first day of trading in a new world, a world in which the US economy, the world’s biggest, has fallen from its high AAA rating pedestal.

After the late Friday shocker announcement from rating agency S&P that it was downgrading US credit rating from the top-rung AAA to AA+, Asian markets were bracing this morning for a continuation of the bloodbath of Friday.

This morning, equities in the Asia-Pacific region are uniformly down, but the downslide has so far been fairly muted. Markets in Japan, Australia, Hong Kong Korea and Taiwan opened lower by up to 2 percent, but since then some of them have come off their lows.

Tokyo stocks were sharply lower in opening trade today. The benchmark Nikkei-225 index of the Tokyo Stock Exchange was down 119.66 points or 1.29 percent at 9,180.22 after the first 10 minutes of trading, having opened 1.40 percent lower.

The dollar was changing hands at 78.29 yen in early Asian trade, compared with rates below 77.00 yen last week before Tokyo stepped into markets to stem its currency’s strength to safeguard its exports.

Analysts also expect to see a mid-session rebound. Financial sector stocks are down relatively sharply.

Likewise, Mumbai too could open weaker this morning, and be extremely volatile. But we’re not likely to see the jaw-dropping falls we saw on Friday.

Two factors may have helped to avert another market mauling.

One, the markets appear to have digested news of the US downgrade, and come to the conclusion that while it is symbolically very significant and dents America’s image and its economic standing over the long term, it hasn’t fundamentally altered - for better or for worse - the dynamics of the US and global economy in the short term.

Second, overnight, the European Central Bank, which held an emergency meeting on the debt crisis in Europe, announced it would expand the safety net of Euro-bonds debt purchases. That’s taken as signalling that the ECB will perhaps buy Italian and Spanish government bonds; those two countries are the latest to feel the contagion effect of the debt crisis that threatens to drag down Europe.

Leaders of the Group of 7 economies too said they were committed to taking coordinated action to support financial markets’ stability and economic growth.

Equity markets are perhaps taking solace from all this, which accounts for the relatively muted fall this morning.

But that’s a short-sighted reading of the problems confronting the global economy. If last week, it was the debt ceiling crisis in the US and market fluctuation there that dragged equities down in India and elsewhere, this week will be the turn of Europe to keep markets on edge. France and the UK too face the prospect of a rating downgrade, but equity markets have likely decided that that’s something to worry about another day. For now, short-termism rules.

Gold is up to a new high - just shy of $1,700 a troy ounce this morning. Even Jim Rogers, a bullion bull, says it’s probably due for a correction, as it’s run up too fast too soon.

So, to sum up: Mumbai is expected to open weak today, but not nearly as bad as it might have been. Over the rest of the week, Eurozone risks will keep markets on edge.

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