Heres a lowdown on top macro triggers that may move market on Friday. This report was compiled from agency feeds.
US-China Trade War: Rhetorics Toned Down
Chinese Vice Minister of Commerce Wang Shouwen said on Thursday that the United States has started a trade war and China will defend itself. He urged the United States to “take the gun” of tariffs away to smooth the way for talks. Earlier on Thursday, President Donald Trump said the United States was in a nasty trade battle with China, but things would ultimately work out. While China has vowed to retaliate to the new tariffs, the lack of a specific response to date has sparked a global relief rally. Asian shares were higher on Friday following gains on Wall Street overnight, as concerns over an escalating US trade war with China took a breather.
Crude Set for Second Weekly Fall
Oil prices edged lower on Friday and were set for a second weekly fall, as the market shrugged off a warning that spare capacity may be stretched as OPEC and Russia increase production. Brent crude LCOc1 eased 20 cents, or 0.3%, to $74.25 by 0059 GMT. On Thursday it gained $1.05 a barrel, rebounding from a session low of $72.67. It is heading for a weekly fall of nearly 4% . U.S. crude CLc1 dipped 6 cents, or 0.1% to $70.27, after a five cent decline in the previous session. It is heading for a weekly decline of nearly 5%.
Inflation Up, Industrial Production Down
On Thursday, Indian economy delivered a double whammy as retail inflation accelerated to a five-month high of 5% in June compared to 4.87% in May, while industrial production moderated to 3.2% in May compared to 4.9% in April. The inflation data is below the market estimate of 5.3% for the month of June but well above RBI's comfort level of 4%. The industrial production index has been pulled down by a sharp moderation in the growth of the manufacturing sector which registered a growth of 2.8% vs 5.2% in April. Core sector industries which rose 3.6% in May compared to 4.6% in April.
States Slip on Fiscal Targets
Higher expenditure on salaries and farm loan waivers, coupled with a revenue shortfall on GST implementation, led to a slippage of 0.35% in states' fiscal targets to 3.1% in 2017-18, the RBI said yesterday. This is the third consecutive year where the states have failed to meet their gross fiscal deficit (GFD) target.For FY19, states are hoping for a 0.2% revenue surplus as against a revenue deficit of 0.4% as per the revised estimates.
MSP Hike: Commodity Prices Rise
The government decision to increase the minimum support price (MSP) of crops has led to an upward movement in the price of agriculture commodities, particularly maize, rice, bajra, moong, tur, cotton and soya bean, said traders and analysts. They expect prices of pulses and cotton to rise further. The price of maize in the physical market increased to Rs 1,260 per quintal from Rs 1,210, and that of rice to Rs 6,300 from Rs 6,100. Among pulses, moong whose MSP was hiked by 25%, has already seen a Rs 3 jump in price to Rs 53-54 a kg in the Indore wholesale market. Tur dal prices increased from Rs 36 a kg to Rs 38.
Aviation Fuel, Natural Gas under GST?
India is proposing to bring jet fuel and natural gas under GST as early as next week and replace a slew of existing duties and provincial levies, Bloomberg reported. A tax panel will decide July 21 whether to approve the proposal to levy a 28% tax on aviation fuel. This will be the first step towards charging GST on petroleum products under the new tax system, one of the biggest reforms for Prime Minister Narendra Modi.
Steel Prices Plummet
Indian steel prices, which climbed in lockstep with a rebounding economy, have made an about-turn as output bound for overseas returns home amid the threat of an escalating global trade war. Monsoon rains that affect construction locally have also kept demand restrained Steel prices of long products, such as TMT bars, billets and ingots, have dropped around Rs 4,000-4,500 per tonne in the last 15 days and could fall further through August and September. In the international markets, steel has declined, weighed down by softening prices of iron ore and coking coal.
POLICIES & MORE
- Tata Steel is planning to sell some of its businesses in South-East Asia as part of its strategy to exit $500-million non-scalable businesses and turn focus to domestic market. Tata Steel has appointed a banker in Singapore to scout for buyers for NatSteel Holdings Pte Ltd (Singapore) and Tata Steel Thailand.
- Avendus Capital, controlled by US private equity giant KKR, emerged as the surprise frontrunner to acquire the mutual fund business of IDFC. Avendus and KKR have made an offer of Rs 3,000-4,000 crore and are in exclusive negotiations with IDFC.
- President Donald Trump dealt a double blow to UK Prime Minister Theresa May, saying her plans for a soft Brexit would likely end hopes of a trade deal with the US and that Boris Johnson, who quit her cabinet this week, would be a “great” leader.
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FUNDAMENTALS
Rupee Up: The rupee surged by 20 paise to end at a one-week high of 68.57 against the US dollar on Thursday, buoyed by a steep fall in crude prices and a strong rally in equity markets.
Long-term Bond Yields Down: Government bonds (G-Secs) firmed up following rising demand from corporates and banks. The 7.17% G-Secs maturing in 2028 rose to Rs 95.9625 from Rs 95.37, while, its yield slid to 7.78% from 7.87%. The 6.68% G-Secs maturing in 2031 climbed to Rs 89.68 from Rs 88.92, while, its yield moved down to 7.96% from 8.06%.
Shorter-term Bond Yields Down: The 6.84% G-Secs maturing in 2022 gained to Rs 96.34 from Rs 96.0325, while, its yield eased to 7.83% from 7.92%. The 7.59% G-Secs maturing in 2026, the 8.20% G-Secs maturing in 2022 and the 7.35% G-Secs maturing in 2024 were also quoted higher to Rs 97.42, Rs 101.07 and Rs 97.06 respectively.
Call Rates Down: The overnight call money rates finished lower to 6.10% from Wednesday's level of 6.25%. It resumed higher at 6.30% and moved in a range of 6.30% and 6.00%.
Liquidity: The Reserve Bank of India, under the Liquidity Adjustment Facility, purchased securities worth Rs 6143 crore in 10-bids at the overnight repo operations at a fixed rate of 6.25% as on Thursday, while, its sold securities worth Rs 6,878 crore in 39-bids at the overnight reverse repo auction at a fixed rate of 6.00% as on July 11.
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