The members of the Monetary Policy Committee (MPC) of the RBI clearly voted for rate cut but flagged serious concerns on inflation. As per the minutes of the MPC meeting concluded on 06th June which were made public on 20th June, the members had been unanimous about the rate cut of 25 basis points and the shift in stance to accommodative. However, all the members of the MPC had flagged inflation concerns, especially food inflation. The discussion clearly preferred the dovish stance only to spur growth, notwithstanding inflation concerns that continue to pose a question mark.
A few days after India imposed tariffs on US imports, the NASSCOM has warned that visa caps could squeeze IT business in India. With India still trying to negotiate with the US on the caps proposed on H1-B visas, NASSCOM (the representative body of Indian IT companies) has issued warning that this cap could seriously impact the business economics of Indian IT companies. There has already been an impact in the last few quarters due to higher manpower costs. As per NASSCOM, this could also crunch demand for skilled IT professionals in India, an area is heavily betting on for the future.
Geopolitical risk is back in a big way in the Middle East and West Asia. Brent crude surged nearly 4% to above $64/bbl after Iran shot down a US drone. On a day when the equity markets were celebrating the Fed’s dovish stance, oil markets were in virtual turmoil. The problems surfaced in the second half after Iran shot down a US drone over the Gulf of Hormuz. While the US claimed it was in international airspace, Iran has claimed that the drone had encroached into the territory of Southern Iran. The situation remains tense has US warned Iran to be ready to face the consequences.
NCLT has admitted Jet Airways for bankruptcy resolution with 90-day time limit based on the plea of State Bank of India, Jet’s largest lender. A little over 2 months after Jet officially ceased operations, the NCLT has admitted the company to bankruptcy. It has also appointed a Grant Thornton representative as the resolution professional. SBI decided to take the IBC route after attempts to find a buyer failed. Although the law allows 6 months, the tribunal has been directed to complete the process in 3 months itself. It is, however, uncertain what kind of haircut the banks will have to eventually take.
Falling bond yields became a global phenomenon. In India, bond yields fell sharply but stocks spurted on the BSE. The Sensex gained close to 500 points on a day when the benchmark 10-year bond yields fell below the 6.8% mark. The dovish signals by the US Fed and the Bank of Japan depressed yields in India but gave a boost to equity markets. US benchmark treasury yields, meanwhile, dropped below 2% after nearly 32 months. US 10-year yields fell below the 2% mark to touch 1.97% for the first time since November 2016. This sharp fall in the yields came after the Fed, on Wednesday, kept status quo on rates but opened the doors for rate cuts in the future. This sharp fall in the long term yield accentuates the problem of inverted yield curve in the US; which has normally been a precursor of recession.
Wall Street leads global markets higher on dovish guidance. Even as the dollar took a hit and bond yields trended lower, equities gained across global markets. The decision by the US Fed to maintain status quo rates but indicating further rate cuts went down well with the global markets. Markets across Asia, Europe and the Americas traded in the positive on Thursday. This was predicated on optimism that Trump could strive to end the trade war too. On Wednesday, Trump had indicated that the trade talks would resume between the US and China ahead of the Xi-Trump meeting at the G-20 Summit.
