Pressure on the oil prices continued on Wednesday as Brent crude cracked by 360 basis points to $56.83/bbl on global growth worries. As the trade war between the US and China escalated with the US firm on giving the currency manipulator tag to China, oil price reflected fears of a clear demand slowdown. Despite the geopolitical tensions in the Middle East and the OPEC supply cuts, weak demand expectations pushed Brent Crude below $57/bbl. Oil is already at a seven-month low currently and is getting closer to the $51/bbl that oil had touched in November last year.
The fall in the rupee has been much sharper than expected as the Indian rupee slumped 3.1% in five trading sessions on Yuan pressure. What started off as a temporary weakening of the rupee turned into a full-fledged sell-off on the rupee as it got closer to the Rs.71/$ mark. The Chinese Yuan was allowed to weaken to CNY7.06/$ and that has kept the pressure on the rupee. CNY is currently at a 10-year low and the weakening has continued despite US threats of declaring China as a currency manipulator. This tag would make China vulnerable to a number of sanctions in the global financial and currency markets.
With the RBI cutting repo rates by a generous 35 basis points, the central bank has also stressed on the urgent need for commercial banks to transmit rate cuts to borrowers. In the aftermath of the monetary policy the RBI governor stressed on the need for banks to transmit these rate cuts. Das emphasized that any revival in consumption and capital cycle would only happen if banks transmitted rates more aggressively. Das also underlined that repo rates were now back at the 2010 levels and despite two rate hikes last year, net fall was 60 bps since 2018; which was big enough for transmission to end users.
Auto is not just the most distressed consumer segment today but also the one that is most unfairly taxed. Auto sector has sought GST cuts and funding sops to revive the demand for automobiles. The stage was set by Anand Mahindra during the presentation of the quarterly results as he called for lower GST to revive the auto sector. Automobiles are currently charged GST at 28% and there have been demands to reduce the GST to the mean rate of 18%. The auto industry representatives also demanded that the government make auto funding from NBFCs easily available and the process smoother.
The Monetary Policy Committee (MPC) surprised the market by cutting repo rate by 35 basis points to 5.40%. However, the markets reacted negatively to the RBI downgrading the full year GDP to a level of just 6.9%. The markets interpreted the higher rate cut as a desperate response to a slowing economy as the rate sensitives and the high beta names were the worst hit. Meanwhile, Wall Street continued to weaken as global money turned distinctly risk-off. In the aftermath of the worsening trade war situation and fears of a global slowdown, the global equity markets took it on the chin. The Dow Jones (DJIA) plunged more than 500 points on opening as global investors preferred the safety of bonds and gold in the face of an impending slowdown. NASDAQ was less impacted due to its technology predominance.
Pakistan has officially suspended bilateral trade with India and downgraded diplomatic ties. In a move that was apparently an immediate reaction to the abrogation of Section 370 by the Indian government; the reaction from Pakistan was expected. Pakistan recalled its envoy from Delhi and also sent the Indian envoy back. Prime Minister has already termed the action by the Indian government as illegal and has promised to move the United Nations in this regard. Meanwhile, the United Nations Human Rights Commission to the way the abrogation was down and the implications for human rights and freedom.
