Global economic situation
How are the Indian and global economic environments affecting the financial markets?
The Indian financial markets this week have primarily shown sensistivity to oil price changes. At the same time it must be noted that the markets are displaying awareness of the building broader macro and global pressures as discussed last week.
- The prospect of OPEC and non-OPEC oil producers raising supply to meet global demand and to ease the tightening of the oil market has lowered the oil price and strengthened the rupee, boosting the equity markets. However, this is not translating into lower prices at the pump for consumers and, therefore, could be a contributor to inflation. Sentiment in the financial markets thus has shifted to possible change of monetary policy stance to hawkish or even tightening of money supply by the RBI as soon as its June 06, 2018 meeting to address concerns about any further weakening of the rupee and rising inflation beyond the RBI’s medium term target of 4%. Growth is still expected to be above 7% in the last quarter of 2017-18 and is forecast to be the same for 2018-19 as both investment and consumption are expected to rise, but the impact of any hawkish RBI policy on growth will not be fully known until it happens.
- On the global front, besides the continuing uncertainty about US-China, US-EU and NAFTA trade negotiations and the US-North Korea nuclear talks which are causes of market volatility, the uncertainty in Italian politics is disturbing the euro and any instability in the eurozone could both affect its growth rate and Indian exporters. Also, Indian imports of oil from Iran are in potential limbo given the threat of reimposition of sanctions by the US on Iran.
What to expect from the markets next week?
The Equity and commodity (with oil price firming in the USD 65-80/barrel range) markets in India are expected to be trading in a range-bound manner because on the upside they cannot go any higher given the fundamentals of the companies and on the downside they cannot go any lower because of the absence of major triggers though the markets are concerned about India’s macro environment, primarily interest rates, current account deficit, and budget deficit, and their affect, looking forward, on foreign institutional investment (FII), the fundamentals, and the rupee. To watch would be the second bi-monthly RBI monetary policy committee meeting on Wednesday, June 06, 2018.