Oil’s well that ends well
Brent crossed $66/bbl; a 30% bounce from December lows. The impact was visible in the January trade deficit going up by $1.6bn. This is also putting pressure on domestic crude prices since India imports 85% of its daily crude requirement. Rising oil prices and impending elections make for strange bedfellows. If you are wondering why the downstream oil companies in India are under pressure, the expectation is that the government may pressure OMCs to absorb part of the oil rally. OPEC’s commitment to supply cuts combined with Venezuelan sanctions will further lift oil prices.
What is good for China is good for the world, and the answer is not trade war
The US and China concluded another round of talks to de-freeze the trade tariff war. In the past few rounds, both have been circumspect about their statements, and hence, markets are none the wiser. Today, China is to the world economy what General Motors was to the US economy some 50 years back. What is good for China is good for the world and for India too. Indian markets are worried about the trade war for two reasons. First, it is already putting pressure on export growth and second, it is hitting metal companies hard. The good news is that the US and China may be flexible about the March 1st deadline with another round of talks underway in Washington.
BREXIT: Less than 40 days to Economic Nirvana?
As the Guardian summed it up succinctly, “Britain needed an hour of reckoning and the answer came in the form of BREXIT.” With less than 40 days to go, there is neither a deal nor the semblance of a deal. The British Parliament has been consistently scuttling May’s proposals but offering little by way of alternatives. In the next few days, it will be clear if the deal stays or is revisited with another vote. Remember, the Tata group is already the largest employer in the UK, and India is a major investor in the UK. The overhang is visible on stocks such as Tata Motors and Tata Steel as well as auto ancillary companies with large European franchises. The uncertainty is more harmful than BREXIT itself.
Fed Minutes: Very little surprise expected
The Fed minutes will be the next big revelation, but it may not have too much shock value. Global markets have already factored that there will be no further rate hikes this year. Unless Powell squeezes in a hawkish googly, there is not much of a surprise element. The only thing to watch is the bond taper. If the Fed chooses a dovish rate stance and ample liquidity support, the RBI could have good reasons to attempt another rate cut. That could be good news for the rate sensitives in Indian markets such as banks, NBFCs, auto, and realty.
National Emergency for a Wall: what was that?
On Friday the 16th of February, Trump officially declared a national emergency over the wall along the Mexican border. The National Emergency enables Trump to use his veto power and bridge any shortfall in the wall budget from the defence procurement fund. It could get worse! Several states are already filing legal suits against Trump for declaring a National Emergency, and the last word may not be said. Yet, prolonged uncertainty is not great news for Indian markets, and it is still unclear what Trump proposes to achieve with the wall.