The World this Week June 11 - June 15 2012Document Transcript
The World This WeekJune 11 – June 15, 2012
Equity View: Equity markets in India and across the world continue to be in an upward movement on the back of positive news coming out of US and Europe. Greek elections results came out last night and the results have been favorable in which the pro bailout parties are expected to form a majority on their own. The important thing is that single largest party gets 50 bonus seats because of which there is a chance of clear majority between two leading pro bailout and pro Eurozone parties. With this election, a big uncertainty that the world had about whether Greece is going to exit from Euro has come down significantly. We continue to wait for the government formation exercise in the next one week but as of now this is a big positive as far as equity market sentiment is concerned. In the last week we saw big data points in terms of inflation and IIP. We believe that going forward its very clear that between growth and inflation, RBI is going to probably favor growth because growth seems to be falling off a cliff. We have last 4 quarters of consistent fall in GDP of around more than 0.5- 0.6%. From 8% GDP growth in Q4 2011 fiscal, we are down to around 5.3% which is a very significant deceleration in growth. Going forward the focus of all the policy makers - be it on the monetary or fiscal side - will be on reviving growth. We were expecting a repo rate cut and more importantly a CRR cut which did not happen in today’s RBI Policy. The CRR cut was more important at this point of time because it would have added liquidity in the system very quickly and would enable banks to pass on the Interest Rate Cuts to the economy at large. On Wednesday we have a US Fed meeting which will continue till Thursday. There are a lot of expectations about the stimulus package which could come from Fed. There is no clear detail as to what it would look like and whether it would happen this week or early next month. The issue is that US is running a very tight election calendar. There are elections in the US in November and if any stimulus has to be given it has to be given between now and next month, otherwise it would get too late for the stimulus package to have any real impact on the economy. The markets continue to expect monetary easing across the world. We have already seen China going ahead and taking the lead in terms of rate cuts. In the developed part of the world we have already seen US Federal Reserve is ready for any stimulus measures if required and we shall come to know that on Wednesday and Thursday.News:DOMESTIC MACRO: The Congress party named Finance Minister Pranab Mukherjee as its nominee for president on Friday, capping a week of political turmoil that exposed the fragility of a coalition government that has lurched between crises as the economy sputters. The 7.55% rise in the wholesale price index (WPI) was witnessed for the month of May over a year earlier as both food and fuel price pressures have intensified. Indias exports fell 4.16% year-on-year to $25.7 billion. Imports declined an annual 7.36% to $41.9 billion, leaving a trade deficit of $16.3 billion for the month of May. Industrial production rose just 0.1% in April from a year earlier, revised figures showed 3.2% fall in March.
GLOBAL MACROEuro: On Friday, a rare fight broke out between Germany and France which traditionally maintain a united front as the euro zones most powerful countries. German Chancellor Angela Merkel criticized Frances economic performance, a swipe at Socialist President Francois Hollande who has called for more emphasis on economic growth and less on budget austerity. The yield on Spains 10-year bond topped 7% on Thursday, a danger level that triggered international aid deals for Greece as well as Ireland and Portugal. Italys banks are not in a situation similar to Spains banks because they have much less exposure to the real estate market, Standard & Poors primary credit analyst Renato Panichi told Reuters. Fitch Ratings on Tuesday downgraded 18 Spanish banks less than a week after the agency cut the countrys sovereign debt rating, underscoring the potential for lenders assets to deteriorate further.US: U.S. manufacturing output contracted by 0.4% in May for the second time in three months and families took a dimmer view of their economic prospects in early June in signs the American economys recovery is on shaky ground.
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