Despite slowdown fears in the global economy, Brent Crude prices hardened on Tuesday but faced resistance at $68/bbl and closed lower. While the price of Brent did manage to scale past the $68/bbl mark, it hit resistance at 68/bbl but still closed 94 bps higher at $67.84/bbl. Oil prices climbed on Tuesday on the back of declining US inventories and pressure on supply coming from Venezuelan sanctions. However, at higher levels, the weak demand expectations have kept a lid on prices. OPEC has continued to be defiant on supply cuts and now Russia has also joined the chorus.
Cement prices in India recorded the third consecutive month of an uptrend with the price growing by nearly Rs.7/bag in the month of March. While the price hikes were pronounced on an all-India basis, the cement dealers were forced to roll back prices in North and South due to muted demand. Cement companies traditionally need pricing power to get better valuations in the stock market. Historically, cement companies have been extremely cyclical and the rich valuations have only come about when the pricing power has come into the hands of the sellers. That is just about appearing now.
It would not be wrong to say that the US FDA has tightened the inspection noose on Indian pharma companies in 2018. The number of US FDA inspections spiked in the last year by 24% when the overall US FDA inspections in other regions fell by 17%. Over the last few years, the FDA has consistently expressed unhappiness over the lax standards of production and hygiene maintained at various pharma manufacturing plants and testing laboratories. This is not great news for Indian pharma companies. In fact, the sharp fall in pharma stock prices commenced only after the FDA inspections began.
In the first ever issue of dollar swap auctions, the RBI set a high cut off premium to make it attractive to the subscribers. The RBI set a premium of Rs.7.76/- for the first dollar/rupee 3-year swap auction. The 7.76 premium translates into an annualized cost of 3.75% to swap dollars which is nearly 5 bps higher than the prevailing market rate. The demand was so robust that the RBI received bids worth $16.3 billion. The RBI has accepted $5 billion worth of swaps which will infuse Rs.35,000 crore of domestic liquidity. This could be a signal for the RBI to bring more such swaps in the future.
Wall Street higher as Janet Yellen rules out chances of the recession on the inverted yield curve. US markets showed a sharp bounce on Tuesday after Janet Yellen, former Fed Chief, chipped in to clarify that the inverting yield curve was more a signal to cut rates than an impending recession. There was a rally in bond yields, equity stocks and also in the dollar as gold prices weakened on Friday. The inverted yield curve has been a major subject of debate in global markets. Traditionally, inverted yield curves in the US have been a lead indicator of a major recession and that has held in most of the past occasions. However, this time around, the US does have the advantage of more flexibility in its monetary policy. Yellen has been insisting on cutting rates lower to give a boost to growth.
Former RBI governor, Raghuram Rajan, has expressed doubts on India’s ability to grow GDP at 7% if sufficient jobs are not created. Rajan also hinted at the confusing signals coming on the quality of data and suggests that the government must come clean on a single reliable source. Rajan also expressed unhappiness over the restating of past data to show higher growth in the current year. Raghuram Rajan has had a mixed relationship with the current government after his extension was denied in 2016. However, his successor Mr. Urjit Patel also met a similar challenge and had to quit after 2 years.
