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from Expert Zone:
India Market Weekahead – Inflation, FII inflows to be key
(Any opinions expressed here are those of the author and not of Thomson Reuters)
The bulls are back and their four-week winning streak saw the Nifty close at a 29-month high of 6107 on Friday, up about 2.75 percent for the week. Liquidity flows remain robust, fuelling the momentum despite political heat in New Delhi.
The Congress win in Karnataka boosted positive sentiment, followed by industrial output data that was marginally better than expectations. The overall earnings season has been favourable and along with the global rally provided the right environment for the markets to cross the psychological barrier of 6100 in the Nifty and 20000 on the Sensex. The only thing missing is euphoria on the street and broader participation by investors.
Politics was in the spotlight with the Congress romping to a comfortable win in the Karnataka assembly election. The victory in the key southern state took the sting out of the resignation of two cabinet ministers. Parliament had already been adjourned without a date.
The diesel price increase of 0.9 rupees per litre is more evidence that the government is not backing down from reform measures. But there is speculation the pace of reforms will now slow considerably as opposition parties have smelt blood.
from Expert Zone:
Why is RBI chief Subbarao so cynical?
(Any opinions expressed here are those of the author and not of Thomson Reuters)
In its policy review on May 3, the Reserve Bank of India (RBI) did bring down the repo rate by 25 basis points but it also presented a gloomy outlook on growth and inflation which left the stock markets cold. The Sensex, which had surged in anticipation, fell 160 points. What makes the RBI so negative when even rating agencies are inclined to accept the emergence of green shoots?
RBI Governor Duvvuri Subbarao has himself spelled out the risks. “Upside risks are still significant in view of sectoral demand supply imbalances, the ongoing correction in administered prices and pressures stemming from increases in minimum support prices,” he said. Is Subbarao’s risk assessment genuine or has it been exaggerated to put the government under pressure?
from Global Investing:
Weekly Radar: May days or Pay days?
So, it's May and time for the annual if temporary equity market selloff, right? Well, maybe - but only maybe. A fresh weakening of the global economic pulse would certainly suggest so, but central banks have shown again they are not going to throw in the towel in the battle to reflate. The ECB's interest rate cut today and last night's insistence from the Fed that it's as likely to step up money printing this year as wind it down are two cases in point. And we're still awaiting the private investment flows from Japan following the BOJ's latest aggressive easing there.
So where does that all leave us? A third of the way through 2013 and it’s been a good year so far for nearly all bulls – both western equity bulls and increasingly bond bulls too! Not only have developed world equities clocked up some 13 percent year-to-date (the S&P500 set yet another record high this week while Europe's bluechips recorded a staggering 12th consecutive monthly gain in April) , but virtually all bond markets from junk bonds to Treasuries, euro peripherals to emerging markets are now back in the black for the year as a whole. For the most eyebrow-raising evidence, look no further than last week’s debut sovereign bond from Rwanda at less than 7 percent for 10 years or even newly-junked Slovenia’s ability this week to plough ahead with a syndicated bond sale reported to already be in the region of four times oversubscribed. For many people, that parallel rise in equity and bonds smells of a bubble somewhere. But before you cry “QEEEEE!” , take a look at commodities -- the bulls there have been taken a bath all year as data on final global demand hits yet another ‘soft patch’ over the past couple of months.
from Expert Zone:
Need to bring repo rate in line with inflation
(Any opinions expressed here are those of the author and not of Thomson Reuters)
For nearly three years now, the Reserve Bank of India (RBI) monetary policy has had a single target. The presumption is that only when inflation is below the tolerance limit can the interest rate be made normal.
The last time the repo rate was reduced was on March 19 when it was cut by 0.25 percent, a change understandably ignored by commercial banks and other financial institutions. With the repo rate at 7.5 percent and inflation down to 5.9 percent, the market expects the RBI to cut the repo rate further at its next policy review on May 3.
from Global Investing:
Will gold’s glitter dim in India?
Indians have reacted to the latest gold prices falls by --- buying more gold. And why not? Aside from Indians' well known passion for the yellow metal (yours truly not excluded) gold has by and large served well as an investment: annual returns over the past five years have been around 17 percent, Morgan Stanley notes.
Now, gold's near 20 percent plunge this year has wiped some $300 billion off Indians' gold holdings, Morgan Stanley estimates in a note (households are believed to own about 15,000 metric tonnes of gold). So is the gold rush in India over?
from Global Investing:
Cheaper oil and gold: a game changer for India?
Someone's loss is someone's gain and as Russian and South African markets reel from the recent oil and gold price rout, investors are getting ready to move more cash into commodity importer India.
Stubbornly high inflation and a big current account deficit are India's twin headaches. Lower oil and gold prices will help with both. India’s headline inflation index is likely to head lower, potentially opening room for more interest rate cuts. That in turn could reduce gold demand from Indians who have stepped up purchases of the yellow metal in recent years as a hedge against inflation.
from MacroScope:
German ghost of inflations past haunting European stability: Posen
"Reality is sticky." That was the core of Adam Posen's message to German policymakers on their home turf, at a recent conference in Berlin.
What did the former UK Monetary Policy Committee member mean? Quite simply, that the types of structural economic changes that Germany has been pushing on the euro zone are not only destructive but also bound to fail, at least if history is any guide.
from Global Investing:
‘Ivanovs’ keen on new cars despite high inflation – Sberbank
Sberbank's hypothetical Russian middle-class family metric - the 'Ivanovs'- shows the average Russian family is concerned about high inflation, though that is still barely denting some peoples' aspirations of getting behind the steering wheel of a new car.
April's Ivanov index, a survey of more than 2,300 adults across 164 cities in Russia with a population of more than 100,000, notes people are still concerned about persistently high inflation, which in Russia is at around 7 percent.
from Anatole Kaletsky:
If Europe wants Thatcherism, it must abandon austerity
Among all the obituaries and encomiums about Margaret Thatcher, very few have drawn the lesson from her legacy that is most relevant for the world today. Lady Thatcher is remembered as the quintessential conviction politician. But judged by her actions rather than her rhetoric, she was actually much more compromising and pragmatic than the politicians who now dominate Europe. And it was Thatcher’s tactical flexibility, as much as her deep convictions, that accounted for her successes in the economic field.
Governments in Europe and Britain today are obsessed with hitting preordained and unconditional targets: Inflation must be kept below 2 percent; deficits must be reduced to 3 percent of gross domestic product; government debt must be set on a declining path; banks must be recapitalized to arbitrary ratios laid down by some committee in Basel. In sacrificing their citizens’ well-being and their own political careers to these numerical totems, modern leaders often claim inspiration from Thatcher. And when voters turn against them, Europe’s leaders keep repeating Thatcher’s most famous slogans, “There is no alternative” and “No U-turn”. But are these the right lessons to draw from Thatcher’s political life? A closer look at her economic achievements suggests otherwise.
from The Edgy Optimist:
The ‘laws of economics’ don’t exist
In a world increasingly framed by economic debates, the phrase “the laws of economics” has become ever more prevalent. As the U.S. Senate prepares to unveil a new immigration bill, much of the discussion centers on the economics of illegal immigration and the incentives for employers to hire undocumented workers. Said a recent Barron’s article: “Immigration policy is a game governed by classic economic rules, especially by Say's Law, which says supply creates its own demand … Whether the new applicants are seeking stoop-labor jobs in California's Central Valley or high-tech jobs in Silicon Valley, the laws of economics dictate the outcome: more immigration.”
How about the war on drugs? Said one recent analysis: “We’re losing the war on drugs because it’s a war that defies the laws of economics. We might as well be fighting a war on gravity.”
