The Markets Fight To Hold Ground But End Lower

• (00:00) Stories Of The Day
• (01:10) The Markets Fight To Hold Ground But End Lower. It's Back To Fed Gazing
• (03:20) Global Funds Are Retreating From Emerging Markets Like Asia
• (04:23) The Rupee Is Hitting Fresh All Time Lows
• (15:42) Can Gold Prices Keep Going Up
• (23:43) The World’s Fastest Growing Advanced Economy 
• (24:50) Heatwaves In Philippines And Mumbai To Floods In Dubai

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

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Markets Look For Global Signals, On Edge Over Middle East

Wall Street on Wednesday was looking stronger than it was on Tuesday, after more statements and signals emerged that interest rate cuts were far away.

It is indeed interesting and worth recounting how interest rate cuts were almost a given in two months time and have now moved to perhaps later this year if at all.

The reason of course is a hot US economy which is also unable to contain inflation.

The good news is that the US economy is stronger than what most people predicted which is also good news for the rest of the world. For example, Indian IT companies. The bad news is of course that the US economy is strong and capital is staying put because interest rates are high and thus more attractive than chasing assets all over the world. On balance at least.

On Tuesday, benchmark indices BSE Sensex and NSE Nifty ended lower on Tuesday. Wednesday was a market holiday for Ram Navami.

The market continued its downward momentum amid ongoing geopolitical uncertainty for the second consecutive day.

This is unlikely to go away, the uncertainty and I will come to that in a moment.

The BSE Sensex closed 456 points lower at 72,943.68 levels, while NSE Nifty50 closed 124.60 points lower at 22,147.90 levels on Tuesday.

HUL and Titan were the top gainers that surged 1.7 per cent and around 1.5 percent while Infosys ended nearly 3.6 percent lower ahead of its March 2024 quarter earnings scheduled to be released this Friday.

Coming back to uncertainty in the middle east, a factor that will drive stock markets down and other commodity prices from oil to gold up, it appears going by some reports that Israel will retaliate against Iran for its missile attack on Israel.

The Core Report is not and nor aspiring to be a geopolitical show but it is clear that Israel will go for extreme battle-intense responses in most such situations. 

This would be a good assumption to make for current and future escalations when it comes to gauging impact on different markets. And of course I hope things calm down.

This also means that markets will be on the edge for more time.

Global Funds Are Pulling Out

Global funds are retreating from emerging markets in Asia, with a five-month buying spree of stocks ending on scaled-down expectations for US rate cuts, Bloomberg is reporting.

Overseas investors have sold nearly $2.2 billion worth of equities in the region’s emerging markets in April, on a net basis, according to data compiled by Bloomberg. This figure excludes China and also is the first time it is happening since  2017.

The MSCI EM Asia Index is just a whisker away from giving up its year-to-date advance. The gauge had been up as much as 4.6% on the year until concerns mounted last week that the Federal Reserve will delay rate cuts.

Active emerging market funds saw an outflow of $2.7 billion in March amid rising bets that the Fed will delay easier policy, according to Jason Ng, a strategist at Morgan Stanley. Notably they reduced tech-heavy Taiwan, while adding to positions in Saudi Arabia, Turkey and United Arab Emirates, he wrote in a report.

Oil Demand And Currencies

The rupee has hit an all time low again. And comes on the back of several record lows hit in recent months, the last being at 83.53.

The rupee generally stays within a band and has been among the least volatile currencies in the world but it is slipping nevertheless.

There are a few broad forces that work. If dollars come into the country, particularly via foreign portfolio or direct investment then the rupee strengthens. These are the somewhat less predictable flows since factors like trade and inward remittances which are also at records are more predictable.

One factor that sees more dollar demand is obviously the purchase of imported crude, on which India’s reliance hit a fresh all-time-high for the full financial year 2023-24 (FY24) due to growing demand for fuel and other petroleum products amid flagging domestic oil production.

The Indian Express reports that as per latest data from the oil ministry’s Petroleum Planning & Analysis Cell (PPAC), India’s oil import dependency for FY24 climbed to 87.7 percent from 87.4 percent in FY23.

The number may seem small but it does indicate that the trend is not reversing, as it should be, by now.

India’s oil import dependency was 85.5 per cent in FY22, 84.4 percent in FY 21, 85 per cent in FY20, and 83.8 per cent in FY19.

So, that brings us back to currency.

What will drive currency shifts and trends in coming weeks and months and what has changed in the recent past that is putting more pressure on the INR.

To understand that, I reached out to Kunal Sodhani, Vice President, Global Trading Center at the Korean Shinhan Bank in Mumbai and began by asking him what had changed in the last month ?

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Meanwhile, crude is presently holding around $89, a little over but below $90. This obviously suggests that despite the war risk premium, prices are still getting pushed down because supply is still strong and demand is weak, at least relatively.

The Federal Reserve Speaks On Interest Rates

So what did the Federal Reserve say on Tuesday that made everyone return to the drawing board or whichever board you look at while sitting in the trading room ?

Federal Reserve Chair Jerome Powell said Tuesday that the U.S. economy, while otherwise strong, has not seen inflation come back to the central bank’s goal, pointing to the further unlikelihood that interest rate cuts are in the offing anytime soon, CNBC reported.

He said that while inflation continues to make its way lower, it hasn’t moved quickly enough, and the current state of policy should remain intact.

“More recent data shows solid growth and continued strength in the labour market, but also a lack of further progress so far this year on returning to our 2% inflation goal,” the Fed chief said.

Echoing recent statements by central bank officials, Powell indicated the current level of policy likely will stay in place until inflation gets closer to target.

Since July 2023, the Fed has kept its benchmark interest rate in a target range between 5.25%-5.5%, the highest in 23 years. That was the result of 11 consecutive rate hikes that began in March 2022.

Powell added that until inflation shows more progress, “We can maintain the current level of restriction for as long as needed.”

Brooklyn To Mumbai, People Are Selling Gold

Gold prices are rising, as we have been pointing out. 24 Karat Cold is now close to Rs 74,100 while silver is trading around Rs 87,100 per kilogram.

All of which will make you wonder why you did not buy more gold earlier.

The question of course is should you be doing so, that is buying gold now ? More on that shortly.

Meanwhile, from Brooklyn to Mumbai, people are selling gold to recycle for jewellery even as others are buying for investment reasons.

M P Ahammed, Chairman of Malabar Group told Livemint that of late they were seeing a growth in gold recycling demand from a section of customers at our stores in India due to gold price rise. From April to December 2023, we witnessed 48% of the gold was recycled. Over the last three months, we have observed that 50% gold has been recycled across our branches in India.

Elsewhere, Bloomberg reports from a pawn shop in Brooklyn, New York where customers are lining up to sell.

The reasons vary or you might say are similar. 

Bloomberg sas for some, it is hard to ignore record prices that climbed above $2,400 an ounce last week. For others, it’s a more desperate move to get money for bills and rent. 

The speed and magnitude of gold’s ascent is astonishing — since the 2024 low in mid-February, it has rallied 17%.

“People are using gold as an ATM they never had,” said Gene Furman, owner of King Gold & Pawn and Empire Gold Buyers. 

At Furman’s 5th Avenue store, the number of people coming in selling and pawning gold jewellery is more than three times above normal levels since prices started to rally in late February.

One 30-year-old IT specialist, who sold a gold necklace and a gold ring last week.

“Prices are high, and I need cash,” he said, adding that with the cost of rent, groceries and car insurance rising, he doesn’t have any savings.

At King Gold, a 55-year-old was pawning a bracelet for gas bills. It was her first time using such a service, but she says she’ll do it again if needed.

Bloomberg points out that most gold is held by countries — the US alone has more than 8,000 tonnes.

So where are gold prices headed and what will determine that in coming weeks or months. I reached out to Sugandha Sachdeva, Founder of SS Wealth Street, a Delhi-based equity, commodity and research firm who has tracked commodities including gold for many years.

I began by asking her what were the forces of demand and supply she was seeing right now.

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Guess Which Is The Fastest Growing Advanced Economy 

Russia’s economy is expected to grow faster than all advanced economies this year, according to the International Monetary Fund.

Russia is expected to grow 3.2% in 2024, the IMF said in its latest World Economic Outlook published Tuesday, exceeding the forecast growth rates for the U.S. (2.7%), the U.K. (0.5%), Germany (0.2%) and France (0.7%).

The prediction will be falling for Western nations which have sought to economically isolate and punish Russia for its 2022 invasion of Ukraine, CNBC reported.

Russia says Western sanctions on its critical industries have made it more self-sufficient and that private consumption and domestic investment remain resilient. Meanwhile, continuing oil and commodity exports to the likes of India and China, as well as alleged sanctions evasion and high oil prices, have allowed it to maintain robust oil export revenues.

Is there a moral of the story here? Well, I leave it to you to form one if you haven’t already.

Heat Waves In Philippines To Floods In Dubai

Extreme weather events are upon us. I did not have to look far this week, Mumbai itself where we are, saw extremely high and unusual temperatures and going by projections, there are more such days to come this summer. 

Temperatures touched 10-year highs around 40C in the city and were way above normal.

And we were thinking summer in its true full blown form is yet to start.

Elsewhere, storms and heavy rain have caused flooding in some Gulf states, leading to the Tuesday closure of Dubai’s airport — one of the busiest in the world.

The United Arab Emirates, usually known for its hot and sunny weather, reportedly saw over 100 mm of rain in a 24-hour period, marking a 75-year record since the country began logging rainfall.

According to the Associated Press, which cited the meteorological data collected at Dubai International Airport, the city received a year and a half's worth of rain within 24 hours.

Some 19 people died in Oman due to flooding, according to local media.

The rains began late Monday, intensified on Tuesday and by the end of the day, more than 142 millimetres (5.59 inches) of rainfall had poured on Dubai. An average year sees 94.7 millimetres (3.73 inches) of rain at Dubai International Airport.

Meanwhile, speaking of heat waves in Mumbai, a heat wave in the Philippines forced power plants to shut down on Tuesday, placing the country at risk of blackouts and prompting the government to call on people to reduce consumption, Bloomberg reported.

Nineteen generators are offline, while three others are running on reduced capacity, on the main Luzon Island, the National Grid Corp. of the Philippines said in a post on its Facebook page. 

The grid has been placed on red alert for the first time in almost a year, meaning supply is seen as insufficient to meet demand, it said.

Like everywhere else in the world, hotter weather increases electricity demand for fans and air conditioning and makes it harder for plants to prevent overheating. 

The Philippines’ weather agency said in January that 2024 may be one of the warmest years on record for the country, threatening to stretch the nation’s grid. 

Back in India, the India Meteorological Department (IMD) as you know came out with an ‘above-normal’ forecast for the 2024 monsoon season, at 106 percent of the long period average (LPA). 

It is in more than a decade that IMD has — in its initial April forecast — predicted ‘above-normal’ rains in the country.

But IMD Director General Mrutyunjay Mohapatra told Business Standard that if the rainfall is more, one can expect the probability of flooding to be more. 

But, when we are talking about floods, we need to consider whether it is riverine or urban floods. If you talk of riverine floods, then in the Northeast, we have the major flooding system of the Brahmaputra and its tributaries. But, we are expecting ‘below-normal’ rains there. 

Therefore, floods won’t be frequent in those parts at least. In Odisha, too, we have predicted ‘below-normal’ rains. 

From the western Himalayas… in Jammu and Kashmir and Ladakh, we are expecting below normal rains. But in Himachal Pradesh and Uttarakhand, ‘above normal’ rainfall activity is predicted. So, accordingly, you can infer that there could be chances of floods but not in all the rivers.