Midnight News Update – Aug 17th 2017
The US dollar traded weak in early trades in Asian markets as investors are increasingly getting sceptical about the ability of Donald Trump to sustain his economic momentum. The recent disbanding of the Business Council is the latest episode that has made investors sceptical. Markets were also jittery after a terror attack in Barcelona late last evening in which nearly 13 people were killed and over 30 injured. The dollar weakened against the safe haven currency, the Yen, even as it slightly strengthened the dollar. Equity indices across the US and Asia fell sharply in the light of the dollar weakness.
After SBI cut the rate on savings deposits by 50 basis points, other banks like HDFC Bank, PNB and Yes Bank have also followed suit. Of course, this rate cut will be limited to deposits up to the limit of Rs.50 lakhs only. Most Indian banks have been battling a surge in deposits in the aftermath of demonetization which was not matched by proportionate growth in the loan book. Thus banks were left with a payout mismatch. The options were to raise the rates on loans or cut deposit rates. With loan growth already tepid, raising loan rates were anyways not feasible. Banks like Yes Bank and Kotak pay higher rates.
The Dallas Fed president, Robert Kaplan, has long been a votary for a more mellowed rate hike approach. According to Kaplan, there are clear warnings of a slowdown in the US economy and that should induce the Fed to go slow on rate hikes. As of now there is still no evidence that the economic growth and inflation is bouncing back. The Fed in its last meeting in July had maintained status quo on rates. The Fed has already hiked rates twice in this calendar year and proposes one more rate hike to reach its full year target. The long term equilibrium rate will be still below the pre-crisis levels.
Base metals have been in the midst of a frenetic rally in 2017 but SocGen believes that this rally in base metals could continue all the way to December this year. Copper, aluminium and Zinc have all gained by 15% in the last few months. The SocGen believes that the key driver for the base metal prices could be a revival in demand from China and from the EU region which is seeing a revival in growth. Additionally, the dollar weakness has also been positive for the base metals. According to SocGen, the demand for commodities is picking up although not to the pre-2007 levels. China could be the key!
For the next quarter ending September 2017, Indian companies are expected to report lower than expected growth and profits as the GST is likely to take its toll on their top-lines and bottom-lines. In fact, Bloomberg analysts have downgraded estimates for 34 of the 50 stocks in the Nifty index. In fact, Kotak has given an EPS estimate for the Nifty at Rs.462, which values the Nifty at around 21-22 times earnings. In the June quarter, average earnings of the Nifty 50 actually fell by 8.4%. Some of the key index heavyweights like pharma, IT, Banking and Oil & Gas companies are likely to report lower than expected earnings. That is likely to put pressure on Nifty valuations. Indian earnings have been tepid for the last 16 quarters and the market has been long betting on a recovery in earnings.
In a surprise move, Tata Sons announced that the Tata Group would sever all business ties with the Shapoorji Pallonji Group. It may be recollected that in October 2016, the scion of the SP group, Cyrus Mistry, was evicted from the post of Chairman of Tata Sons. The SP group has a long association with the Tatas and some of the buildings for Tata Motors and TCS were all built by the SP Group. Late last year, a battle of control for the group emerged where Ratan Tata had to intervene to settle matters. The SP group has given a statement that there were no fresh orders in the last 2 years from the Tatas.
