The United States took a step closer to losing its coveted triple-A credit rating over the weekend as a political impasse in Washington reduced hopes of an agreement to meaningfully cut the nation's budget deficit.
Although analysts still expect a last-minute deal to raise the U.S. debt ceiling and avoid a default next week, it seems unlikely that Democrats and Republicans will agree before the next election in November 2012 how to find $4 trillion through government spending cuts and revenue increases.
Prospects of a budget breakthrough faded as lawmakers missed a self-imposed deadline to produce a deal by the time Asian markets opened for the new week. They still plan to outline proposals on Monday, but both sides appear further apart than ever.
Moody's, Standard & Poor's and Fitch have said they will downgrade the U.S. credit rating if failure to raise the nation's $14.3 trillion debt ceiling leaves the Treasury without cash to service its debt obligations in August.
But, at this point, raising the ceiling is not enough to safeguard the triple-A rating.
The ratings agencies have said the top-notch U.S. rating will only be safe if they see a credible plan from Congress and President Barack Obama to address the country's growing debt burden.
S&P would likely be the first to remove the triple-A status -- a move that could raise borrowing costs for Americans for generations to come, with Moody's and Fitch expected to follow, though perhaps not immediately.
The ratings agencies have suggested that deficit-reduction measures of some $4 trillion over 10 years could allow the U.S. to retain its current rating, though that also depends on a healthy pace of economic growth.
In another day of tense negotiations in Washington on Sunday, plans to cut hundreds of billions of dollars from the national debt have been proposed and then quickly discarded as the debate degenerated into an ideological battle.
Republicans, driven by the fiscally conservative Tea Party movement that helped them win the House of Representatives last November, strongly oppose tax increases, while Democrats dislike proposed cuts to popular social programs.
S&P HAS FINGER ON THE TRIGGER
In mid-July S&P threatened to cut U.S. ratings in the following three months if a meaningful deficit cutting plan wasn't agreed.
After issuing that downgrade warning, John Chambers, chairman of S&P's sovereign ratings committee, told Reuters "this is the time" for such a deficit-reduction agreement.
"If you get a small agreement, that will lead to a downgrade," he said in the July 14 interview.
Initially, the agencies seemed willing to wait longer for a deficit reduction plan. But eventually they came to the conclusion that, if a deal is not reached now, it will become even more difficult next year, when presidential elections will further increase political divisions.
"When this started, the focus was the debt ceiling. Now the issue is that the ratings agencies have said they need to have a credible deficit-reduction program in place for them to take away the threat of a downgrade," said Steven Englander, head of G10 FX Strategy at Citigroup in New York.
Moody's has also said it may revise the outlook on the U.S. rating to negative if lawmakers raise the debt ceiling but fail to substantially cut the deficit. A negative outlook is a sign the rating may be downgraded in 12 to 18 months.
Fitch said it will decide on the outlook for the U.S. rating as soon as lawmakers reach a budget deal in Washington.
David Riley, Fitch's main analyst for the United States, said the decision will take into account the headline figure for deficit reduction but also the credibility of the plan.
et Airways, India's largest airline by market share, is looking to add routes in the South East Asian and Gulf markets in the next one or two quarters, K.G. Vishwanath, Vice President, Commercial Strategy and Investor Relations, said in a conference call with analysts.
Last week, Jet had posted a much lower-than-expected June quarter net loss on better revenue and a one-time gain, but the carrier cautioned high fuel and intense competition hurt performance.
The luxury car space in the Indian automobile space seems to be getting little more competitive as the global luxury car makers coming up with more plans to introduce newer models in the market. Now it has been reported that the German luxury car maker Mercedes Benz would unveil its compact range in the Indian market by the end of 2012.
The reports quoted Mercedes Benz India MD and CEO Peter Honegg as saying that the cars with left-hand-drive option would be introduced globally later this year in Europe and in India by 2012-end. He was quoted as saying "Initially, cars with Left Hand Drive option, manufactured at our facilities in Germany and Hungary, will be introduced in Europe later this year. We plan to bring them to India by 2012-13 as Completely Knocked Down (CKD) units." He declined to state its price. "Right now we don't have the facility to manufacture the compact class at our Chakan facility near Pune," he said.
The reports also stated that at present, Mercedes Benz India manufactures the C, S and E class at their facility in Chakan near Pune. On the outlook for this year, he said they would clock over 7,000 units in sales compared to last year's 5,800 units. "Last year we sold 5,800 cars. This year we expect to Cross 7,000 units. During January-June (2011) we sold 3,800 units," he said. He also mentioned that the company has invested Rs 400 crore to ramp up the paint shop at their Chakan plant, which has a capacity of 20,000 units. "Our plant with two shift operations has a capacity of 10,000 units. By next year,it should reach 20,000 and in coming years capacity will reach 40,000 units."
It was also reported that the company has set a target of about 130-140 Actros buses to be sold this year compared to 70 last year. He said financing options for Mercedes Benz buses would also be covered later this year under the parent company's financial services division. He mentioned that there are 30 dealers all over India and would seek to strengthen their presence in cities like Delhi, Mumbai and Chennai.
India gold extended last week's gains to hit another peak on Monday afternoon in step with overseas markets and a weaker rupee, pushing traders to the sidelines in a seasonally lean demand period.
* The most-active gold for August delivery on the Multi Commodity Exchange (MCX) was trading higher by 0.97 percent at 23,323 rupees per 10 grams at 1:24 p.m., after hitting a contract high of 23,339 rupees earlier.
* "Demand is dull as prices are on the top side. Some people who were short in the market have covered...," said a dealer with a state-run bullion importing bank in Mumbai.
* Overseas gold hit a record high above $1,622 an ounce, while the dollar steadied and Asian stocks slipped as investors piled into bullion over fears of a possible U.S. debt default as the debt ceiling talks in Washington stalled.
* A weaker rupee also aided sentiment. The rupee plays an important role in determining the landed cost of the yellow metal, which is quoted in dollars.
* The rupee weakened, weighed by dollar demand from local oil companies for import payments, with choppy domestic shares offering little direction, a day before the RBI's policy review.
(Reporting by Siddesh Mayenkar; Editing by Subhadip Sircar)