Markets Slip As Trump Warns Iran
The Indian market started somewhat positive on Tuesday but began slipping lower
On Episode 609 of The Core Report, financial journalist Govindraj Ethiraj talks you through the top business news stories of the day. We also feature an excerpt from our extended discussion with Algorand’s Technical Lead for India, Nikhil Varma in our ongoing “Build On Blockchain” Series.
SHOW NOTES
(00:00) The Take
(04:21) Markets slip as Trump warns Iran
(06:44) No direct risk to India on Israel-Iran war.
(09:19) Citibank says gold prices will fall
(10:59) Exporters to the US are wanting out of dollars into Euros and yuan.
(13:20) Build on Blockchain
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Wednesday the 18th of June and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. Before we start off, I do want to acknowledge and thank so many of you who reached out and enquired after my health as I was sounding off colour on the Tuesday, 17 June podcast. Well, I'm quite well and the reason for my strained and subdued voice is quite simply I was recording the podcast in a somewhat crowded place while in transit late Monday night and hence sounded constrained.
Now of course, I'm back in Mumbai and sounding, hopefully, quite normal. So thank you once again for your concern. It does mean a lot to me and my colleagues.
And a quick take on the latest developments following the crash of Air India's Ahmedabad to London Boeing Dreamliner on the 12th of June which killed all on board except for one lone survivor and many on ground as well.
The Take
On Tuesday, Air India cancelled a staggering seven international long-haul flights to and from destinations like London, Paris and Vienna.
Of these, six were Dreamliner aircraft and only one, according to the Economic Times, was a non-operating one which means it would likely operate at some point unlike the rest which had been cancelled and taken off schedule. A spate of cancellations attributed mostly to technical snags is worrying for a slightly different reason because they all come within days of the crash of Air India's Ahmedabad to London Dreamliner. Pilots I spoke to say the reason for such technical snags is not that they all happened on that day being Tuesday but aircraft engineers are now refusing to certify aircraft for use due to issues which they may have earlier overlooked.
Now this is of course one side of the story but it does seem statistically unusual that so many technical snags would surface on a single day for the same or similar aircraft. For instance, a non-functioning lavatory is a snag that engineers might let go for repair at the home base or the onwards station but now that might not be the case. Moreover, pilots could also refuse to fly when informed of similar problems or if they discover them as they are within their rights to do so.
In the freight environment that we are in with the safety of hundreds of passengers lives in each flight at stake, you cannot obviously blame any of them. But whatever the nature of these snags are, Air India would do well to be transparent about them and keep the travelling public informed well in time. Speaking of transparency, while reports from air crashes do take time to compile with final reports sometimes taking months or more than a year, it is imperative to share early official findings as soon as possible.
The families of passengers on the ill-fated aircraft and those who died on the ground in Ahmedabad on the 12th of June will want to know what caused the Boeing Dreamliner to fall out of the sky moments after it began rolling down the runway. As would anyone who's catching a flight in coming days including on Air India. Speaking of Dreamliners, there is no conclusive evidence or insight yet on what really caused the aircraft's twin engines to fail that day as it took off from Ahmedabad's airport except to note that they inexplicably did so.
Now this has not happened before at least to this aircraft. There are some 1,100 Dreamliners in service across the world as we speak undertaking daily flights right now. All the pilots who fly similar wide-body aircraft who've been opining on the issue have been eliminating various probable causes but are still unable to satisfactorily explain why these engines would have stopped so suddenly.
And it's not just in India but the global aviation fraternity from aircraft makers and airlines to crew and of course passengers who are waiting for answers. Not surprisingly speculation is at a fever pitch right now and an information vacuum at any point in this operational chain particularly in these days of social media will only feed the speculation whether it be small snags or the crash itself. So the bottom line is please do not believe the conspiracy theories during the rounds and do wait for some official findings to emerge and not let speculation carry the day.
And that brings us to the top stories and themes for today.
The stock markets slip as Donald Trump warns Iran
There is no direct risk to India on an Israel-Iran war according to economists
Exporters to the United States are wanting out of dollars into euros and yuan
Citibank says gold prices will fall
The Markets Slip
The Indian market started somewhat positive on Tuesday but began slipping lower even as US President Donald Trump warned people to leave Tehran, the capital of Iran, in the context of further air raids by Israel. Most global stocks were weak even as gold and oil prices were up.
Earlier, US President Donald Trump cut short his visit to the Group of Seven summit in Canada while reports said he ordered the National Security Council to be on alert in the Situation Room according to Reuters. Oil is a concern for India as we've been discussing over the weekend. While India has limited trade with the region, any blockage in the Straits of Hormuz could hit oil supplies drastically and more on that shortly.
The risk of high oil prices impacting inflation currently at six-year lows are high and could have other downstream effects. And thus, on to our markets. On Tuesday, the Sensex closed down 212 points at 81,583 and the Nifty 50 was down 93 points at 24,853.
The broader markets were also down Nifty Mid Cap 100 and the Nifty Small Cap 100 but down about 0.8% each. Pharma stocks were particularly hit after US President Donald Trump renewed his threat to impose tariffs on drugs imported to the US and the Indian drug and pharmaceutical industry obviously has substantial exposure there. Meanwhile, on Wall Street, US stocks, Pell and oil prices rose after hopes for a quick resolution to the Israel-Iran conflict dimmed after on Tuesday, Israel and Iran continued to trade missile strikes, making it the fifth day of fighting, said the Wall Street Journal, which also reported that US President Donald Trump left the meeting in Canada after signing on to a G7 statement calling for peace in the Middle East but said that he wanted to work on a real end and not a ceasefire.
The White House said that the United States is not joining Israel's attacks on Iran amidst speculation fuelled by military buildup in the region. But in leaving the G7 early, says the Wall Street Journal, Trump abandoned several conversations on trade aimed at easing tensions over tariffs and other issues. Meanwhile, in the US, new data showed that US retail sales declined more than expected last month, falling about 0.9% from April or 0.3% if vehicle sales were excluded, according to the Wall Street Journal.
Back home again, the rupee too took a hit, touching its lowest in more than two months, falling to about 86 rupees 28 paise against the US dollar and that being the weakest level since April 9th before closing at 86 rupees 24 paise, Reuters reported. Specifically on the Israel-Iran war, let's understand what matters and what does not. A report from Elara Securities here says a direct risk to trade from the Israel-Iran war is unlikely, though the escalation of geopolitical tensions is a key risk for oil prices.
On the trade front, India's reliance on Iran in merchandise trade is low, it's 0.1% of imports and 0.3% of exports as of 2024 calendar year, and Israel is 0.2% of imports and 0.5% of exports, but on the other hand, risks may emerge in defence, says Elara, as 81% of India's imports from Israel, that is from Israel, are arms, ammunitions, and explosives, and of course, drones. The situation with the state of Hormuz warrants attention as speculation is high now that Iran might close this vital choke point as a retaliatory move. Half of India's petroleum and crude imports transit through this strait, but Elara says that they still do not factor its closure as a base case.
Of course, this is something other analysts have also been pointing out, as closure would bring Kuwait, the United Arab Emirates, Saudi Arabia, and Oman in direct conflict with Iran, all of them being oil exporting countries. China is also a major recipient of the oil and gas transiting through here, and 65% of Iran's government revenue comes from here, that is from oil and gas export revenues. Now, the state of Hormuz, which connects the Persian Gulf to the Arabian Sea, is recognised as one of the world's most important oil choke points.
In 2023, oil flows through this area averaged about 21 million barrels per day, CNBC quoted the U.S. Energy Information Administration saying, and this accounted for about 20% of global petroleum liquids consumption. However, freight rates have jumped after those Israeli attacks on Iran last week, according to data published on Monday from analytics firm Kepler, quoted by CNBC, said that Mideast Gulf tanker freight rates to China rose about 24% on Friday to about $1.67 per barrel. The CNBC report also says, quoting a global ship owner's body, that some ships are already diverting from the straits.
And oil prices are now higher on Tuesday because of the continuing Iran-Israel conflict, though major oil and gas infrastructure and flows have so far been spared from substantial impacts, says Reuters. Brent crude futures were up almost a dollar and a half to about $74.70, so just under $75 a barrel by midday Tuesday, while West Texas intermediate crude was up also similarly to about $73 on Tuesday once again.
Could Gold Prices Fall?
So while gold prices are hitting new all-time highs right now, it is expected to sink back below $3,000 an ounce in coming quarters as the record-setting run peters out, Bloomberg is reporting.
Citigroup says spot gold was last traded about $3,388 an ounce, so you can contrast that there. Prices once again moved up and down on Tuesday after Trump called for an evacuation of Tehran and then left the Group of Seven summit early. So all of this, even if it partially comes true, would be good news for buyers, particularly in countries like India, where hundreds of millions of Indians buy gold for various occasions apart from investment purposes.
The Citigroup analysts said that they felt gold could come to about $2,500 to $2,700 an ounce by the second half of 2026. That's about a year away. And that slump may be driven by weaker investment demand, improving global growth prospects and rate cuts by the Federal Reserve.
So in contrast or in context, gold prices have jumped about 30% this year, setting a record in April with tariff traumas causing investors to move funds to safer havens like gold. Also in the last year, as we've been discussing here, several central banks, including China and India, have been upping their gold reserves. And here's a message from our sponsors.
People Don't Want Dollars
Several companies are now wanting trades to be settled in their local currencies, including Euros and Yuan. A new report from Bloomberg is saying. The head of currency sales at U.S. Bancorp told Bloomberg that when she speaks to U.S. importers, she increasingly hears them saying that their foreign counterparties no longer want to be paid in dollars.
Instead, they ask for settlements in Euros, Chinese Renminbi, the Mexican Peso, and the Canadian dollar, looking to limit their exposure to further swings in the dollar. According to her, a lot of clients were previously reluctant because dollars were sacred in the eyes of the supplier, but now the vibe from overseas vendors seems to be just give us our currency. The dollar is about 8% lower this year against a basket of other currencies, and this followed a steep 7% rise in the final quarter of the 2024 calendar, according to the Bloomberg index.
All of this volatility, which complicates pricing decisions and poses earnings risks, means the dollar is falling out of favour, says Bloomberg, and quotes several examples, which are, of course, more anecdotal but insightful nevertheless, the first being the example of a lumber company from the Midwest in the U.S. which converts its U.S. cash into Euros before paying for hardwood imports from Europe, as opposed to earlier when it would just send dollars. It also helped in this case that the supplier offered a 2% discount for making payments in the Euro. A homeware retailer that imports from China negotiated its terms, its supplies, and plans to settle its next bill in Yuan.
A U.S. food company sourcing equipment from Italy agreed to pay its dues in the Euros again, causing it to receive a more favourable rate on a purchase worth about close to half a million dollars, according to Bloomberg. The chief market strategist at cross-border payments firm Corpay in Toronto told Bloomberg that the change is difficult to quantify in real time, but in markets from East Asia to Latin America, a growing number of exporters are opting to denominate contracts in Euro, Yuan, or even local currencies. So how could all of this impact or is impacting trade in India or between India and the U.S.? Well, I don't have the answers right now for you, though there is a sense towards reducing exposure to dollars where possible, but how much and to what extent is that something that I will come back to you within days.
Build On Blockchain
Welcome back to Build on Blockchain, where we dive into how decentralized technologies are redefining access, ownership, and opportunity from the ground up.
This week, we’re zooming out from finance to focus on something even more fundamental: trust in the supply chain. Whether it’s the food we eat, the clothes we wear, or the fuel we use—how do we really know where it all comes from?
Supply chains today are still built on limited transparency, siloed data, and intermediaries guarding their turf. That trust gap—between what’s claimed and what’s real—is exactly where blockchain steps in.
From tracing cotton to its farm of origin, to verifying whether a biofuel shipment is truly green, to unlocking better financing terms between partners—blockchain brings verifiability to every node of the value chain.
I spoke to Nikhil Varma, Technical Lead for India at Algorand. And began by asking him about how blockchain plays a role in supply chain integrity.
INTERVIEW TRANSCRIPT
Nikhil Varma: See, supply chain, in fact, some people call it value chain, right, is a very, very complex phenomenon. One of the reasons why it's a complex phenomenon is that, you know, supply chain... It comes back to trust again.
It is. Trust. It's all embedded in trust.
Even with tools like ERP, right, what happens is I don't want to tell my downstream who my upstream is, right? Because I always fear that they will bypass me and go upstream, right? And because of this, there is transparency yet to only one level.
So I will tell you, suppose you are buying things from me and I bought things from Anil, I won't tell you what I got from Anil. I'll tell you, hey, this is... Or at what price.
Yeah, right. So, I mean, price is one factor. We would still like to abstract the price because that brings in other kinds of problems.
But suppose, you know, you're buying raw materials from me. Suppose you're making a brand, yeah? And your brand is socially conscious.
And I come and tell you, hey, you know what? This cotton that I have is very social conscious. Cotton comes to my place, you see people are well paid.
But the cotton from where I procure cotton from Anil, in Anil's place, Anil is a great guy, but I'm just saying, in Anil's place, he's not paying the real wages to the workers. Or got child labour. Or got child labour, yeah.
That's opaque to you, right? And I just create this whole, you know, aura about, you know, my organisation. So, what happens in this whole process, sometimes this thing comes out in the open.
So, traceability throughout the supply chain can be something that blockchain can carry. That's one of the things. I think that's going to be a game changer.
That's going to be bringing in the whole construct of sustainability, carbon footprint, like, you know, when you talk about carbon footprint, we just want to have scope 1 and scope 2 carbon footprint that we are tracing. Scope 3, which is about 80 plus percent of the actual carbon footprint, is not traceable, right? Blockchain will be able to give you that.
So, that's one aspect. The other aspect is the financing aspect, right? So, supply chain financing is always a very big problem, right?
And that lack of financing is what kind of restricts us from making the supply chain grow. So, instead of just being transactional with me, if you are my partner, right, then we will be able to make more money. It's been, you know, studied.
There's a lot of research done on that. But you will be transactional with me because, you know, you want to kind of minimise your risk, right? I will be transactional.
I'm just following that same thread here, okay? I will be transactional with him because I want to minimize my risk. But if we are all relational, we'll all benefit from the process.
So, essentially, the economy will grow manifold, yeah? So, that's the other aspect of the supply chain.
Govindraj Ethiraj: So, could you use an illustration? Let's say you're buying cold rolled steel and then eventually, obviously, it goes into becoming a car. And what points do you think that, you know, you see smart contracts or tokens and how do they help free up or ease up the whole system?
Nikhil Varma: Okay. Let's kind of talk about biofuel, which is essentially a very interesting area, you know, and even green hydrogen or biofuel. So, the whole idea of biofuel, you know, there's been a lot of stories around Europe where the integrators actually kind of buy a certain degree of biofuel, they integrate things and then sell it further.
They are not able to separate the traditional biofuels with the non-green fuel, yeah? Biofuel is supposed to be green. So, how do you demonstrate that you've done it in order to claim credits and so on?
Correct. So, suppose I buy X amount of things from one and we can follow the same thread, yeah? And I sell you Y, then I should not be allowed to sell anything more than X minus Y, right?
So, you know, if I am able to sell more than X minus Y, I magically created something here, right? That's the whole story of organic food, right? The amount of organic food that is sold in the markets is way more than the number of organic food that is actually produced, right?
So, we get into this whole problem because, again, the trust, the opaque aspect that I will not talk about my upstream.
