MacroScope

India share bulls running mainly on hope, well ahead of peers

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Indian stocks have rallied sharply over the last two months, soaring to record highs, although the bull run that began with expectations that Narendra Modi will become the country’s next Prime Minister may soon run out of road.

India’s top equity index, the BSE Sensex, was trading over 24,850 on Tuesday, having shot up over 10 percent since mid-April alone, when polling began, despite economic growth languishing below 5 percent, along with high inflation and interest rates.

With growth at just 4.7 percent, only a marginal improvement from the 10 year low plumbed in the previous financial year, the market could struggle in coming months, especially if the economic data continue to disappoint.

“It’s more about perception now,” said Neeraj Dewan, Director at Quantum Securities. “If you look at earnings, you would sell half the stocks.”

The rally undoubtedly started from anticipation that Modi would lead his Bharatiya Janata Party (BJP) to victory in the Indian general election, and possibly with a majority government.

Euro zone inflation data to set seal on ECB action

Euro zone inflation – due at 0900 GMT – is forecast to hold at a paltry 0.7 percent in May, in what European Central Bank President Mario Draghi has labelled the danger zone below 1.0 percent for the eighth successive month.

After German inflation fell to just 0.6 percent on the EU measure on Monday, well below forecasts, the bloc-wide figure could also undercut. We already know the Spanish and Italian inflation rates were just 0.2 and 0.4 percent respectively last month. If that comes to pass, any doubts about ECB action on Thursday, which are thin on the ground anyway, must surely be banished.

A clutch of senior sources have told Reuters the ECB was preparing a package of policy options for its meeting on Thursday, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms (SMEs).

Signs of European dash for growth

The ripples of EU election results are being felt, no more so than in France where the National Front topped the poll.

The day after the results, Prime Minister Manuel Valls promised further tax cuts for French households. The government is already committed to a 30 billion euros cut in labour taxes to help business but insists all this can be done while meeting its EU deficit commitments.

Brussels has already given Paris an extra two years to get its deficit down to three percent of GDP. Today, the European Commission will produce updated country recommendations.

U.S. growth back in bloom: most accurate Q1 GDP forecasters

PMost are convinced, including Federal Reserve Chair Janet Yellen, that the U.S. economy has already warmed up significantly from a growth deep freeze at the start of the year.

Business inventories were run down to nearly nothing in the first quarter, and were set for a rebound. There also is no sign that consumer spending is about to veer off its recovery path, especially with the job market gradually improving. All of that is likely to underpin better economic growth.

The question is by how much. Growth in the current quarter is forecast to be anywhere from 1.4 percent to 6 percent, according to a Reuters survey of 75 economists taken last week. That is the widest forecast range for U.S. economic growth in all Reuters polls in four years, except for one survey last April.

Gas talks resume

Fresh talks between Russia, Ukraine and the European Commission in Berlin will aim to resolve a gas price dispute that Moscow has warned could make it cut off supplies next week.

Ukraine has said the price for 2014 should be agreed before it starts making any payments. Russia’s energy minister has said Moscow and the EU have proposed that Kiev pay Gazprom $2 billion, and another $500 million before June 7, as a precondition for a price discount and further talks.

Gazprom said on Thursday it had not yet received any payments from Ukraine on a debt which it says will have risen to about $5.2 billion by June 7 unless Ukraine begins to pay it off. Kiev has countered that Gazprom owes it around $1 billion for gas following Russia’s seizure of Crimea.

Juncker’s star fading?

EU leaders didn’t get far last night in addressing the voter backlash dealt to them in European elections but it seems less likely that Luxembourg’s Jean-Claude Juncker will end up with Brussels’ top job, a first indication that things are on the move.

Britain’s David Cameron has been determined to block the arch federalist from becoming European Commission president and, after the strong showing by far-right and far-left parties, others also seem to see the need for a newer broom, possibly even Angela Merkel.

Juncker is a veteran of EU politics and is a consummate deal-maker, and as head of the centre-right EPP group which topped the weekend polls should be the heir presumptive. But he is very much of the old school.

El Niño may not give Brazil much to worry about on food prices

File photo of loaded soybean truck for BRAZIL SOY.

Now that Brazilian food prices are finally settling down, it looks like El Niño will strike back in a couple of months to throw the world’s weather into disarray.

Bad news for Brazil’s Finance Minister, Guido Mantega?

Not necessarily.

It could just as easily be a blessing, economists say. The changes in climate patterns caused by warmer Pacific waters could actually be a boon for Brazilian soy and corn producers while not necessarily disrupting other crops.

It is not clear yet if the El Niño phenomenon will happen this year – the odds are high at about 70 percent, according to the U.S. and Australian weather agencies.

Evening of reckoning

EU heads of government and state dine in Brussels this evening to discuss their response to a big slap in the face from the bloc’s electorates.

Italy’s Matteo Renzi, who bucked the trend by winning handsomely as an incumbent prime minister, has the wind in his sails and has pledged to change Europe’s focus towards growth and job creation after years of fiscal austerity in response to the euro zone’s debt crisis.

A French official said President Francois Hollande would back Renzi’s call for more pro-growth policies and tell fellow EU leaders that Europe had reached “the alarm level”. Even Germany’s Angela Merkel – the one who really counts – is talking about Europe’s people not caring about treaty change but job security and prosperity.

A negative ECB deposit rate: “What difference would it make?”

A chef slices a portion of greater amberjack while preparing sashimi at the Akasaka Umaya Japanese-style restaurant in TokyoThe European Central Bank will probably cut its deposit rate below zero in a few weeks, charging banks to park money with it.

What is striking is how many analysts and money market traders alike think the net result will be neutral at best.

The trouble is, with few options left and strong hints from the ECB that it is on the verge of action, it is also clear that not cutting the deposit rate would probably do harm by pushing money market rates higher.

Mixed results for right in early voting

The British and Dutch got EU elections underway yesterday and gave only mixed support to the rise of the right.

An exit poll from the Netherlands showed the anti-Islam, Eurosceptic Freedom Party of Geert Wilders’ – which plans to forge an alliance with France’s far-right National Front – had fallen well short of its goal of topping the poll and may even have slumped into fourth place. That would give it three out of the 26 Dutch seats in the EU assembly, down from four in the last elections held in 2009, when it came in second place.

Britain’s anti-EU UKIP seems to be doing much better. There were no indications of how the EU parliamentary vote had gone in Britain, we’ll have to wait for Sunday for that, but parallel local government election results showed a surge in support for the party.
With those results still coming in, Nigel Farage’s party – many call it a one-man band – had secured a net gain of 90 local council seats and was winning well over 20 percent of the vote, mainly at the expense of the ruling Conservatives.