There is a slowdown in global growth and that has not been confirmed by the IMF as it cut global growth outlook amidst global trade tensions. The IMF has downgraded the growth of the world economy for the year 2019 and expects the world economy to grow at just 3.3% in 2019, lower than its earlier estimates of 3.5%. IMF estimates that the side effect of the US-China trade war and a disorderly BREXIT could impact the growth figures as the world economy will take some time adjusting. The trade war between the US and China also showed no signs of abating for now.
After a sharp rally in the last 3 days, Brent Crude finally faced some stiff resistance above the $71/bbl level. In fact, the price of Brent crude had touched an intraday high of $71.34/bbl but corrected sharply in the second half to close 50 bps lower at $70.74/bbl. The rally over the last 3 days was led by tensions in Libya, sanctions on Iran and OPEC supply cuts. However, with the IMF cutting growth estimates for 2019 to 3.3%, oil prices reacted negatively to slower growth indications. Normally, oil demand and oil prices are extremely vulnerable to a slowdown in global growth, especially in the US and China.
Theresa may be up for some tough bargaining against Macron on the BREXIT issue. French President, Macron, has tough conditions for a delayed BREXIT as Theresa May proceeded to France and Germany to extend the BREXIT date to June 30th. In fact, Emmanuel Macron is insisting that the UK be kept out of EU Budget talks and in choosing the next EU President. Macron is also averse to giving a 1-year extension to the UK as suggested by the EU. Germany is a lot keener that UK continues in the EU and avoiding BREXIT at all costs. Germany has been one of the biggest beneficiaries of the European Union.
Indian stocks markets were back to their positive ways on Tuesday. Sensex and Nifty get a late boost on the back of an aggressive BJP manifesto. The BJP manifesto released just a few days before the start of voting had two things of interest for the stock markets. The BJP manifesto has committed to spending $1.44 trillion on infrastructure over the next 5 years and also spend Rs.25 trillion on ensuring minimum guaranteed incomes to farmers. Both could have a salutary impact on stock markets according to a report in the ET. Markets also found the strengthening of the rupee favorable.
Despite the pressure on revenues, the Indian government met the fiscal deficit target of 3.4% for the fiscal year 2018-19. During the interim budget, the government had raised the fiscal deficit target for the year by 10 bps to 3.4%. Despite lower revenues on the direct tax front and the GST front, the government compensated through higher disinvestment revenues and by cutting expenditures. Restrained fiscal deficit puts less pressure on bond markets and interest rates. On the downside, the direct tax collections are likely to fall short of targets by Rs.50,000 crore against the full year estimates of Rs.12,00,000 crore. There is also an additional shortfall of Rs.1,00,000 crore in GST revenues. Weaker growth in the second half due to the liquidity crunch led to lower collections on personal taxation and corporate tax front.
The Directorate General of Civil Aviation (DGCA) has asked all airlines to fly more routes to bring down airfares. With the sharp cut in airline capacity in the last few weeks, airfares have gone up sharply forcing the DGCA to ask airlines not to restrict supply. Airline capacity has been restricted due to financial problems at Jet, Pratt & Whitney engine problems and the Boeing 737 Max software update issue. The rise in fares has come as a relief for airlines that have been suffering from negative spreads. Indian aviation market tends to be quite sensitive to pricing, as has been seen in the past.
