Mexico urges US to reach deal on raising debt ceiling

MEXICO CITY: Mexico's finance minister urged the United States on Tuesday to reach an agreement on raising its debt ceiling, saying a failure to do so could seriously damage financial markets and the global economy.

"(This) has the potential to enormously affect financial markets and therefore not just the United States' economy but also the economies of the rest of the world," Finance Minister Luis Videgaray told Mexican radio.

"It's an event that could be so serious that I think we all trust that the lawmakers and the executive of the United States will find the means to reach an agreement," he added.

India may have to use policy buffers wisely to tackle outflows: IMF

WASHINGTON DC: The International Monetary Fund has cautioned that emerging economies such as India will need to employ "policy buffers wisely" if they confront significant capital outflows on US Fed Reserve's tapering of monetary stimulus.
"Emerging economies need to facilitate an orderly adjustment in their financial markets. If they are faced with significant capital outflows, policy buffers may have to be used wisely," the IMF said in its Global Financial Stability Report. The report, coming ahead of the annual meeting beginning Thursday, says policymakers need to address domestic vulnerabilities by strengthening macro-financial frameworks and buffers.
Financial authorities may need to intervene to ensure the process is smooth, the report suggested. Developing countries saw a larger than normal surge in investments in debt over the past five years, said Jose Vinals, the IMF's financial counselor. These investments are beginning to go out as interest rates rise in the US and the economy recovers.

Government gears up to launch interest rate futures: Sources

MUMBAI: Government plans to launch trading of government bond futures within the next two months as part of efforts to deepen its financial markets, according to several sources involved in the discussions with the central bank.

These interest rate futures would help banks and financial firms in Asia's third-largest economy assess expectations for borrowing costs and hedge the risks of rate changes to their bond portfolios.

It would also provide the country's policymakers with a valuable gauge to measure market expectations for their future rate decisions.

Upbeat about the Indian economy, expect trade deficit to come down: Adrian Mowat, JPMorgan

In an interview with ET Now, Adrian Mowat, Chief Asian Emerging Market Equity Strategist, JPMorgan, shares his views on the US debt deal, emerging markets and some sectors. Excerpts:

Nikunj Dalmia: Finally, we have a deal in place in Washington, but do you think the debt deal means precious little for financial markets because all US lawmakers have pushed the can down the road?

Adrian Mowat: Yes, it has a limited impact on the financial markets. Today the markets are up, but they are up only modestly because most investors assumed that a deal would be done on the final hour which is pretty much what has happened and this is a degree of kicking the can. In January, we will need to readdress these issues once more.

I suppose some of the fringe elements of the Republican Party are expected to lose in this debate and maybe they are not going to use this sort of blackmail tactic again in January, but we will just have to wait and see. So for now, this is no longer a new story, but maybe it will be a new story by the end of the year.

Nikunj Dalmia: The US economy is the core to the world economy and that core is held by the US Treasury. Given the kind of political noises we have got from Washington of late, do you think the US Treasury will lose the status of being called as safe haven?

Adrian Mowat: No, I do not think so. We had the possible threat of a technical default in the US. Although that was still many weeks away and there is much the Treasury could have done to divert cash to pay coupons and bonds. When bonds mature, you could reissue because you would not be increasing the debt limits. I do not see any change in the use of US Treasuries for collateral for parking money for foreign exchange reserves.

Although there is a massive misunderstanding about what central banks do with foreign exchange reserves, they tend to be at the shorter end of the curve rather than the longer end of the curve and then if we are thinking about bonds as an investment, it is very important to remember that tapering has been postponed or we call it the tapering timeout.

Janet Yellen will be at some point reducing purchases of US Treasuries and mortgage backed securities. Mutual interest rates in the US of 4% of the short end, 5% to 6% of the long end, we are long way from those numbers at the moment, but investors need to know that is the new scenery. It is a bond bear market. These remain the reserve currency, Treasuries remain the safe assets in terms of collateral values, but I do not think being in bonds is a very smart move over the next couple of years

Nikunj Dalmia: In last two months, EMs have been all over the place. In the month of August, we saw a virtual bloodbath, more like a capitulation followed by strong recovery and now we are staring at a little bit of euphoria. What is going on?

Japan econmin urges US to resolve fiscal standoff

TOKYO: Japanese Economics Minister Akira Amari on Friday urged US politicians to resolve the fiscal impasse with a sense of responsibility as the world's largest economy.
Amari told reporters that if the impasse is to persist, theUnited States may default on its debt, an outcome which is unthinkable even in developing countries.
US Republicans offered a plan to President Barack Obama on Thursday that would postpone a possible US default in a sign that the two sides may be moving to end the deadlock.
No deal emerged from a 90-minute meeting at the White House, but the two sides said they would continue to talk. It was the first sign of a thaw in a political squabbling that has weighed on financial markets and knocked hundreds of thousands of US federal employees out of work.

Economists clash on theory, but will still share the Nobel Prize

WASHINGTON: The economist Robert J Shiller in 2005 described the rapid rise of housing prices as a bubble and warned that prices could fall by 40 percent.
Five years later, with home prices well on the way to fulfilling Shiller's prediction, the economist Eugene F Fama said he still did not believe there had been a bubble.
"I don't even know what a bubble means," said Fama, the author of the theory that asset prices perfectly reflect all available information. "These words have become popular. I don't think they have any meaning."
The two men, leading proponents of opposing views about the rationality of financial markets - a dispute with important implications for investment strategy, financial regulation and economic policy - were joined in unlikely union Monday as winners of the Nobel Memorial Prize in Economic Science. 
Fama's seminal theory of rational, efficient markets inspired the rise of index funds and contributed to the decline of financial regulation. Shiller, perhaps his most influential critic, carefully assembled evidence of irrational, inefficient behavior and gained a measure of fame by predicting the fall of stock prices in 2000 as well as the housing crash that began in 2006.

Barack Obama, Republicans aim to end budget crisis after meeting

WASHINGTON: President Barack Obama and Republican leaders appeared ready to end a political crisis that has shuttered much of the US government and pushed the country dangerously close to default after meeting at the White House on Thursday.

No deal emerged from the 90-minute meeting, but talks continued into the night in an effort to re-open the government and extend the government's borrowing authority beyond an Oct. 17 deadline. One senior Republican said an agreement could come on Friday, though hurdles remain.

The plummeting standing of congressional Republicans in public opinion polls helped spur a move toward ending the standoff, Oklahoma Republican Representative James Lankford said on CNN Thursday night. The latest, an NBC-Wall Street Journal survey published on Thursday, showed the public blaming Republicans by a 22-point margin - 53 to 31 per cent.