It may not be the end of the trade war but it sure looks like the beginning of the end of the trade war. China and the US have drawn out a plan to bring an end to the trade war. As another round of trade talks between the US and China came to an end, two things became clear. Firstly, the cutoff date of March 01st for an imposition of penal tariffs will be most likely postponed. Of course, the Chinese are unlikely to agree to structural reforms proposed by Donald Trump. However, the broad outline is likely to soothe the frayed nerves in the global markets and that could be the positive take away.
The Monetary Policy Committee announced the highlights of the MPC minutes on Thursday highlighting growth risks despite low inflation. The MPC minutes clearly pointed to the need to take urgent steps to spur economic growth. MPC minutes are normally released 2 weeks after the policy meeting. The 4-2 vote in favor of the rate cut in February was driven by weak inflation and also by growth worries. Subsequent to the policy announcement, CPI inflation for January fell to an 18-month low of 2.19%. However, the transmission of the first rate cut was hardly anything to write home about.
As the world passes through a tentative phase, the impact is visible in the price of gold. For long, gold has been the messiah in tough times and gold prices touched a 10-month high as they get closer to $1350/oz. Gold has been in the midst of a rally globally as the dollar index had shown signs of weakening. After the Fed minutes announced on 20th Feb, the price of gold was expected to go higher due to a dovish tone. However, the dollar strengthened leading to weakness in the price of gold. Traders still believe that the Fed dovishness and macro uncertainty could drive gold prices higher in 2019.
It was a hard-fought victory for the markets as the Sensex gained 550 points in 2 days following a 1620 points correction since the previous week. The Sensex managed to sustain its gains on Thursday as short covering helped stocks in the financial sector and metals to make meaningful gains. The A/D ratio was also strongly in favor of the advances. The quarterly numbers were impressive on the top line front in the December quarter but the net profit growth was lower on input cost pressures. It remains to be seen if the momentum sustains post the weekly expiry.
India overhauls oil and gas exploration rules to lift output and reduce dependence on imported oil. Under the new rules, producers of oil and gas will get greater pricing and marketing freedom, the big challenge in case of gas blocks. Explorers will also get financial incentives for early production plus fiscal incentives for gas production above the normal output commitment. The core problem of too much dependence on imported oil was highlighted as crude crossed $67/bbl in the Brent market on OPEC supply cut expectations. At $67/bbl, the price of Brent has already appreciated by nearly 32% in the last 2 months. Despite the glut of supply likely to come from US Shale, the combination of OPEC supply cuts, Venezuelan sanctions, and Iranian sanction renewal has pressured oil prices.
A day after the government announced plans to infuse Rs.48,239 crore to capitalize PSU banks, Moody’s has opined that any turnaround would not be possible before two years. While the infusion will help them improve core capital, Moody’s believes that legacy bad assets still remain. According to Moody’s, pick up in credit could still be the challenge for the PSU banks. Most of the banks that are being capitalized in this round are the banks under prompt corrective action (PCA). In most cases, the net NPAs are still over 6% giving limited room to maneuver credit growth.
