When the going gets tough, it is time for gold. That is surely playing out in global markets as gold climbed to a 6-year peak with geopolitical tensions leading to risk-off demand for gold. The gold prices rallied sharply and crossed the $1400/oz on Monday. This level was last seen in September 2013. Earlier, gold had peaked at $1900/oz in 2011 when the European crisis had just begun to erupt. Subsequently gold went as low as $1000/oz in 2016. Rise in gold prices has normally been seen as safe haven demand and has moved negatively with the equity markets. Iran tensions have increased demand for gold.
DVR shares with differential voting rights may be back in the reckoning specifically for IT companies in India. According to a report, technology companies may be allowed to issue shares with superior voting rights subject to adherence to corporate governance standards. The idea is to enable new generation IT promoters to retain control. These types of shares did manifest in the form of DVRs in the past but SEBI proposes to permit only technology companies to issue DVR shares. This case was highlighted after L&T made a hostile bid to acquire home grown Mindtree, based out of Bengaluru.
The Jalan panel was supposed to actually submit the report in April but even as of June it continues to get postponed due to internal differences within the panel members. The report of the Bimal Jalan Panel on RBI surplus sharing has been once again postponed and will now be presented only after the Union Budget. The differences arose, as per the Business Standard report, when the Finance Secretary objected to the amount agreed for transfer as being too small. The NDA 1.0 government had been insisting that RBI transfer a bigger portion of its reserves and this had led to the resignation of Dr. Patel.
Trump warnings to Iran had little impact on crude oil prices on Monday. In fact, Brent crude settled 100 bps lower despite Trump sanctions on Iranian leaders. In a provocative move, Trump imposed sanctions on Iran’s supreme leader Al Khamenei as well as his 8 senior officials. However, oil did not really react to the news as the markets were more worried about the global slowdown with little progress visible in the US-China trade talks. Brent Crude fell to $64.57/bbl after staying above the $65/bbl mark for the better part of the previous week. Experts feel that Trump may not have much leeway with Iran.
As the globe simmers and monsoons get delayed, Indian markets remained under pressure. A total of 250 stocks hit lower circuit on the BSE on Monday. The ratio of lower circuit stocks best captures the breadth of the market apart from the A/D ratio. There were clear bouts of selling in mid caps and small caps, especially stocks in the NBFC sector and other rate sensitives like auto and realty. This was despite a rally in many speculative stocks. Meanwhile, there was some good news as monsoons covered more than half of India. The Met Department confirmed that the monsoons had already covered 50% of India’s area despite arriving late in Kerala by 9 days. However, agricultural economists are apprehensive that even if rains are adequate, the sowing season may be lost putting pressure on food prices.
Donald Trump underlined that the Fed was going too slow on rate cuts and chided the Fed members about being too rigid. Actually, the Fed had promised a dovish stance ahead. Trump had expressed a view that a rate cut would not only have boosted the GDP but also the Dow Jones Index to new highs. The rate cut had been a bone of contention between Donald Trump and Fed Chief Powell. Over the last one year, even when the Fed was still adopting a hawkish policy on rates, Trump had been consistently cajoling the Fed to cut rates. CME FEDWATCH has assigned 100% chance of rate cut on July 31st.
