INDmoney Macro Insights

Last updated: 13 Oct, 2020 | 08:04 am

INDmoney Macro Insights

Markets remain volatile

Catching up to last week’s Macro insights, U.S. markets remained volatile owing a lot to President’s Trump health and his view for another stimulus after Fed’s Powell urged the need for a stimulus for reviving the economy further.

U.S. GDP

  • The US economy contracted by an annualized 31.4% in the Apr-June 20 period. This is slightly better than the 31.7% annualized fall estimated earlier.
  • Teen spending hit its lowest levels in two decades as teens are spending less on food, events and other activities marking an average $2150 spending this year – 9% drop YOY according to a survey.

Global Cues

  • Markets remain hopeful in European markets - FTSE 100 rises almost a percent on the back of stimulus expectations on both sides of the Atlantic.
  • While German DAX and French CAC 40 outperform with being up comfortably over 2% in the last week.

Foreign Exchange

  • GBP(Sterling) traded above $1.3 as hopes for Brexit deal offset recent economic pressure caused by new Covid related restrictions, hence the US dollar (USD) lost 0.65% against the Pound on the back of stronger revival and stimulus hopes for the British Economy along with other European economies.
  • A Biden (Democratic) victory will negatively impact the dollar as his plans to increase corporate tax would reduce returns from investments in the US, and the US dollar was seen weakening against safer currencies like the ¥(Japanese yen) and CHf(Swiss franc), the currencies which are not much sensitive to the risk sentiment.

All eyes on final presidential debate

  • The virtual presidential debate scheduled for this week on the 15th was cancelled owing to the current President’s recovery from the virus. This means we’ll only get to see the candidates head to head one last time on the 22nd before one of them is crowned for the next presidential term.
  • This event also aims to settle confusions in the minds of the voters before they decide on their vote on November 3rd - which has probably led to what is one of the most uncertain polls regarding how the elections will pan out.

Indian outlook

FM takes steps to boost consumption

The Indian government has announced a fresh set of measures in the hope of front-loading consumer spending and capital expenditure. This is the second fiscal support package announced to revive the economy. Here’s a summary of the most important measures:

  • Leave Travel Concession Cash Voucher Scheme: Under this scheme, government employees will get cash payment in lieu of LTC during 2018-21. Estimated cost of LTC Cash Voucher Scheme for central government employees is ₹5,675 crore and for public sector banks and units is ₹1,900 crore. The Finance Ministry estimates the scheme could generate additional consumer demand worth ₹28,000 crore overall.
  • Special Festival Advance Scheme: Under the scheme, ₹10,000 advance will be available for all central government employees to be repaid in 10 instalments. The one-time disbursement of this Special Festival Advance Scheme is expected to amount to ₹4,000 crore; additionally it will generate an consumer demand of an estimated ₹8,000 crore if given by all state governments, according to estimates by the government.
  • Along with consumer spending measures, the government has also tried to front load capital expenditure by states through special interest free loans.

The steps announced by the government should help to boost consumption, without putting much burden on the state’s finances.

CPI inflation hits 8 month high

Retail inflation rose to an 8-month high of 7.34% in September from 6.69% in August, on the back of higher food prices, according to government data. In its bi-monthly policy meeting held last week, the RBI had kept the repo rate unchanged, while expecting that the CPI inflation will be around 6.8% for Q2:2020-21. The inflation is expected to ease in the second half of FY21 to about 4.5-5.4%, as per the central bank’s estimates.

IIP contracts in August

The industrial production declined by 8% in August, impacted due to lower output of manufacturing, mining and power generation sectors. The contraction has been slower than the previous months of July (-10.4%) and June (-15.7%).

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