Friday Podcast 28th June 2013
Transcript of Podcast
This Podcast topic is on “Calm after the Storm”.
The storm that hit markets in the last one month looks to be subsiding. On the global front, equity markets fell, bond yields rose and currencies turned volatile after the US Federal Reserve outlined plans to taper off bond purchases. China too played a part in the market turmoil with the shadow banking crisis squeezing liquidity and pushing up money market rates.
India had more than its fair share of volatility with the INR tanking to all time lows of Rs 60.73 to the USD while government bond yields rose 50bps on worries of the impact of the weak INR on the economy. The Sensex and Nifty fell by over 7.5% from highs. FIIs pulled money out of Indian debt and equities and sold around USD 7 billion over the last one month.
Is the storm that hit the market over? Will INR fall further? Will bond yields continue its upward trend? Will equities trend down? The answer is that the storm has weakened considerably and there will be a period of calm before markets make the next move.
The US economy grew by 1.8% in the first quarter of calendar 2013, which was below the original estimate of 2.4%. US GDP growth is expected at around 2% for the second quarter, well below Fed’s estimates of 2.3% to 2.6% for 2013. The sluggish economic growth is tempered by rising new home sales that rose to its highest levels since 2008 in May. Consumer confidence is strong with the index climbing to its highest levels over the last five years in June.
Markets will price in the Fed staying its course on asset purchases and this should lend stability to global markets.
China’s central bank the PBOC (People’s Bank of China) calmed money markets by infusing liquidity into the system and this brought down overnight rates that had threatened to shoot through the roof on the back of a liquidity squeeze.
India’s CAD (Current Account Deficit) for the fourth quarter of 2012-13 came in at 3.6% of GDP against levels of 6.7% of GDP seen in the previous quarter. The fall in CAD is good news for the INR, as a high CAD is seen as a primary reason for the INR weakness. CAD is seen as gradually declining on the back of slow economic growth and on the back of curbs in gold imports.
The economic data from the US, China’s money market rates coming off and India’s lower CAD will help calm nervous markets.
Thank you for listening in. Have a good weekend.