The news from the Chinese front is not too encouraging; at least as far as economic growth is concerned. Fears of a slowdown were back in the global markets after China reported GDP growth at a 30 year low. The industrial profits in China have been on a downtrend since the middle of 2018 and the trend has continued since. Industrial profits actually fell by 3.1% to CNY 602 billion for the month of June raising serious concerns over the negative impact on global output. A large part of the pain in Chinese growth has come from the trade war and the sharp crackdown on shadow banking by the government.
Union Budget 2019 had made a commitment to cut GST on EVs to 5% and the Council has gone ahead and implemented it. In line with the commitment, the first meeting of the GST Council after the Budget implemented the GST rate cut on EVs and also on EV batteries to 5%. This is likely to be a major boost to the automobile segment in India, according to a report in BS. However, the auto industry is currently grappling with more mundane problems like a demand and funding. The situation has become a little tenser after the auto parts association warned of a likely 1 million job losses in the sector.
India wants its nationals in the captured ship to be sent back to India immediately. In fact, India has urged Iran to release all the Indian crew held captive in the British carrier. The situation in the Middle East remained tense after Iran held on to the two British oil tankers in retaliation to a similar action by the UK near the Strait of Gibraltar. While Iran has released 9 of the Indian personnel working in the two carriers, India has urged Iran to release the others too. Oil price have seen a temporary spike due to the Middle East stand-off near the Strait of Hormuz, despite global slowdown fears.
Indian mutual funds may have a lot more to do in terms of penetration from a global comparative context. Mutual Fund assets in India are sharply lower than the world at just 12% of GDP. According to a report in The Hindu, industry leaders have pointed out that despite Indian Mutual fund assets at $320 billion, they just represent a mere 12% of GDP. This is despite the sharp spike in mutual funds AUM by 3-fold since 2014. This compares unfavourably with the US at 102%, France at 80%, Germany & UK at over 60%. The global average is at around 55%, so Indian mutual funds have a huge room to penetrate.
Even as the Budget appears to have spooked the markets, the FM is firm on the sovereign bond issue plans. The coming week is likely to be focused on Fed rate action, to be announced late on Wednesday. CME Fedwatch, which monitors the rate cut probabilities implied in Fed Fund futures, has seen the probability of a 50 bps rate cut reduce from 53% to just about 25%. However, a 25 bps rate almost seems a certainty. In the meanwhile, the Finance Minister ruled out any rethink on sovereign bonds. The government had announced a $10 billion sovereign bond sale in the Union Budget. However, on Friday, Reuters had reported that the PMO had asked for a rethink on the sovereign bond issue considering the currency risk involved. However, the FM denied knowledge of any such concern coming from the PMO
Expensive French wine could get a little more expensive in the US as Trump threatens Wine Tax in retaliation to France’s Technology Tax. Donald Trump may be seeing the trade war triggered by him taking on a new dimension. Last week, Emmanuel Macron of France imposed a technology tax on foreign technology companies operating in France. This is likely to hit US companies the most. Trump has now promised to impose a similar on wines imported from France to make them more expensive in the United States. Unfortunately, this is only promises to drag the trade war for much longer.
