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| Edited By: N S Venkatesh |Source: DNA |Updated: Jul 23, 2018, 05:35 AM IST
A much-expected news hit headlines when Donald Trump fretted over a stronger dollar, which could just be a beginning of the currency war that could be the logical outcome of these trade restrictions and tariffs being mulled by the US. The week that went by was otherwise quiet with global equities modestly higher in an expiry week. The bond yields remained flat for most of the week and market volatility measured by VIX stayed put at 13 a week before. Indian bonds traded in a tight range with some profit taking dominating sentiment after a dip to the expected level around 7.70 early in the week.
The talking point these days is as to how the trade war will pan out in the medium run. China allows its yuan to weaken by continuously weaker fixing by PBOC. With trade discord between the US and China intensifying, Chinese officials have resorted to guide their currency weaker. This could easily permeate across all emerging markets and may also trigger a flight of capital as the US also is on a tightening phase.
Indian markets were largely quiet after the announcement of a ‘No Confidence Motion’ against the government was admitted by the Parliament speaker. The ruling party, however, won the test hands down on Friday and should pave way for more reforms.
Markets continue to tread with caution as MSP hike is estimated to have some detrimental impact on inflation in the shorter term. IMF forecast a cut in India’s GDP growth by 10 basis for a current year and by 30 basis for calendar 2019.
WPI inflation for June came in much higher and should be a dampener. In other reports on the macroeconomy, HIS Markit survey projected a weakening business confidence over the medium term while new business growth is robust. The survey also pointed out that India’s business confidence reading was lowest among the BRIC nations. While this is merely a business confidence survey and would largely depend on the sample used for surveys, it would still have to be viewed a bit seriously as general elections loom.
Bond yields fell towards 7.71% as expected and have traded closer to 7.80% for the larger part of the week. An open market operation (OMO) buy auction from the Reserve Bank of India (RBI) was fully offered while the weekly auction also saw good bids and no devolvement. With liquidity at close to neutral levels and rupee remaining weaker, a large policy initiative may be the only way out to change the trend of weakening bonds and currency.
The writer is a market expert
