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Forex - Dollar Gains on China Tensions; Euro Awaits ECB

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The dollar has gained some buyers in early European trade Thursday, as tensions between China and the U.S. flared up again overnight, but gains against the euro have been limited ahead of the European Central Bank meeting.

At 3:10 AM ET (0710 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 97.502, up 0.3%. However, the index is still down about 5% from its March peak, when the coronavirus pandemic had caused a sprint to this safe haven.

Elsewhere, USD/JPY rose 0.1% to 109.03, GBP/USD fell 0.3% to 1.2533 and EUR/USD dropped 0.2% to 1.1210.

Overnight, the U.S. administration suspended flights into its country by Chinese airlines effective from June 16, reciprocating after China had barred American carriers from entering its airspace.

Relations between the two countries soured after China’s approval of the enactment of national security laws in Hong Kong and Macau last month.

Still, EUR/USD remains above the 1.12 level that it broke through on Wednesday for the first time since mid-March. 

The currency has been bolstered by hopes for European Union-wide fiscal support measures after Germany last month threw its weight behind the idea of a European Union recovery fund, breaking away from its long-held tradition to resist moves towards fiscal integration in the currency bloc.

This prompted the European Commission to propose a 750 billion euro recovery fund, with the money divided into 500 billion euros given to EU countries as grants and the remaining 250 billion euros would be available as loans. 

The European Central Bank had been undertaking a lot of the heavy lifting needed to support the region’s weakest economies prior to this, and is still expected to offer up more largesse later Thursday.

"I suspect the market has already priced in an increase of about 500 billion in the PEPP and in the near-term, there is risk of a correction," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

"The market could react positively if the ECB expands the target of its bond purchase or scrap its limit on each country. But in terms of the total size, it is hard to expect a positive surprise now," he said.

The ECB delivers its policy decision at 1145 GMT and ECB President Christine Lagarde holds a news conference at 1230 GMT.


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Dollar Up as U.S.-China Tensions Escalate

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The dollar was up on Thursday morning, with investors turning to the safe-haven asset as U.S.-China tensions flared up overnight.

In its latest move, the U.S. suspended flights into the U.S. by Chinese airlines effective from June 16 after China barred American carriers from re-entering China.

Relations between the two countries soured after China approved the enactment of national security laws in Hong Kong and Macau last month.

Hong Kong’s Legislative Council has started voting on national anthem bill, a precursor to the national security laws.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies gained 0.21% to 97.465 by 12:12 AM ET (5:12 AM GMT).

The USD/JPY pair was up 0.11% to 109 and the USD/CNY pair was up 0.20% to 7.1260.

The AUD/USD pair lost 0.33% to 0.6896. Australia’s Bureau of Statistics said earlier in the day that retail sales for April fell by a seasonally adjusted 17.7% in April.

The bureau also said that GDP fell 0.3% during the first quarter of 2020 on Wednesday.

The NZD/USD pair slid 0.09% to 0.6413 and the GBP/USD pair lost 0.28% to 1.2536.


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Only 5% Asia Pacific infra firms highly exposed to COVID-19 disruptions: Moody's

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Barely 5 percent of the rated project and infrastructure companies in Asia Pacific have high exposure to coronavirus disruptions, Moody's Investor Service said on Wednesday. Pressure has eased for Chinese toll roads, while a small number of utilities face moderate exposure, it said.

A high proportion (67 percent) of rated project and infrastructure companies in Asia Pacific continue to have low exposure to the coronavirus-related disruptions, supported by their essential nature and predictable cashflows, Moody's Investors Service said in a statement.

“The number of companies with high exposure has reduced in recent months, particulary the Chinese toll road sector following the end of the toll-free period and with recovering traffic volumes,” said Arnon Musiker, senior vice president and manager at Moody's.

Airports now make up most of the high exposure category, he said.

Whereas Moody's in April estimated 9 percent of project and infrastructure companies had high exposure to coronavirus disruptions, this number has now declined to 5 percent.

"On the other hand, a small number of power utilities now have moderate exposure to coronavirus disruption, given rising pressure from falling power prices and lower demand, which is only partly offset by lower fuel costs," the statement said.

Following the reclassification of these toll roads and utilities, the number of companies with moderate exposure has increased to 28 percent from 23 percent in April.

“Moreover, a limited number of projects with exposure to commodity risk – particularly energy-related – also face rising challenges following the recent material fall in oil, gas and coal prices,” Musiker said.

Still, the majority – 67 percent – of companies face low exposure, and include regulated utilities, projects and public-private partnerships, the statement said adding, this risk exposure for regulated networks remains low notwithstanding temporary tariff relief measures instituted by certain companies, given their temporary nature and immaterial effect on metrics.

Indian Stock Market - Art of Stock Investing

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A BOOK 

BY

Manikandan Ramalingam

Its a book that will break the common mis-conception, that Stock Investing is gambling.

I love investing in companies. I started investing way back in 2004, just like everyone else with Zero knowledge. It took me nearly 7 years to learn all critical basics, that is needed to succeed with investing on my own. In this book, you would learn those critical basics in less than a day.

If you think you know everything about stock markets & still making losses, you definitely need to read this book. Its a book, for beginners, amateurs & expert investors. I guarantee you one thing. Your perspective towards Stock Investing will change radically.

Main Topics Discussed in the Book

  • Introduction
  • Why & How Stock Markets Came Into Existence?
  • How & Why Does A Share Price, Rise & Fall?
  • Some Basic Terms of Stock Markets
  • Market Capitalization
  • Earnings Per Share (EPS) & (P/E)
  • Where Can I Check All These For A Company?
  • Art Of Picking Worthy Stocks
  • Power Of Compounding
  • 10 Stock Recommendations - Evergreen Stocks with detailed reports
  • Common Mistakes To Stay Away From
  • Better Times To Buy & Best Times To Sell
  • Gold ETF's
  • Some Personal Advice
  • What About Mutual Funds?
  • Summary or Re-cap of the Book
  • Your Feedback
  • Disclaimer

Dollar Retreats Over Increased Hopes of Global Economic Recovery

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The U.S. dollar was down on Wednesday morning in Asia after increasing optimism over a global economic recovery from COVID-19 increased investor risk appetite.

Investors focused on countries continuing to loosen lockdown measures and restarting their economies, despite the ever-growing number of COVID-19 cases and no cure.

There are almost 6.4 million global cases of the virus as of June 3, according to Johns Hopkins University.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies fell 0.24% to 97.427 by 11:49 PM ET (4:49 AM GMT) as investors retreated from the safe-haven asset.

“The U.S. dollar is generally weak... The economy recovery story is the main factor.

The USD/JPY pair was down 0.05% to 108.61. The yen is also considered a safe-haven asset.

The USD/CNY pair rose 0.16% to 7.1107. China’s Caixin/Markit services Purchasing Managers’ Index (PMI) reading for May was 55, indicating a return to growth for the country’s services sector for the first time since January.

The AUD/USD pair gained 0.66% to 0.6939 even after the Bureau of Statistics said that Australia’s GDP fell 0.3% during the first quarter of 2020.

Daiwa Securities’ Ishizuki remained optimistic about the AUD, saying that “The Australian dollar has a lot of room to run because there are still a lot of shorts that need to be covered.”

The NZD/USD pair rose 0.71% to 0.6413 and the GBP/USD pair gained 0.31% to 1.2588.


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Traders Pin Hopes on RBI Support After Moody’s Cuts India Rating

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Traders in India are yearning for the central bank to backstop the rupee and sovereign-bond markets after Moody’s Investors Service cut the credit rating to the lowest investment grade.

“This is definitely not welcome news and we could see some more foreign outflows,” said Ashish Vaidya, head of trading at DBS Bank Ltd. in Mumbai. “There will be a knee-jerk selloff in the rupee and bonds but we expect the RBI to jump in to curb any bouts of undue volatility.”

India’s long-term foreign-currency credit rating was cut to Baa3 from Baa2, Moody’s said in a late evening statement on Monday, citing policy challenges in addressing a prolonged slowdown and the deteriorating fiscal position. The outlook remains negative, it said.

The cut brings Moody’s rating on India on par with S&P Global Ratings and Fitch Ratings Ltd., both of which have a BBB- rating. Any downgrade by S&P and Fitch will hurt flows to a nation that relies on imported capital to fund investment. Already, global funds have yanked $14 billion from rupee bonds this year, the highest in emerging Asia.

READ: Foreigners Feel India’s Bonds Just When It Needs Them Most

An RBI spokesperson didn’t immediately respond to an email seeking comment.

“The RBI will have to come out with an explicit support for the bond market after this development, otherwise it’s going to be very tough,” said Vijay Sharma, executive vice president for fixed-income at PNB Gilts Ltd. He expects benchmark yields to climb by 15-20 basis points on Tuesday,


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Australia’s Central Bank Holds Fire Amid Early Signs of Recovery

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The dollar was on the defensive on Tuesday as investors stuck to hopes of a global economic recovery despite heightened concerns over U.S.-China tensions and mass protests in many U.S. cities over the death of a black man in police custody.

The U.S. dollar's index against a basket of six major currencies (=USD) stood at its weakest level since mid-March, at 97.790.

The euro fetched $1.11295 (EUR=), little changed so far on Tuesday but holding near a 2-1/2-month high of $1.1154 touched on Monday.

Sterling traded at $1.2491 , having hit a one-month high of $1.2506.

U.S. manufacturing activity eased off an 11-year low in May and although the reading was weaker than forecast, it fit into markets' expectations that the worst of the economic downturn was behind as businesses reopen.

"There are some potential flash points such as U.S. demonstrations and China-U.S. tensions. But, on the whole, the market is still moderately risk-on," said Kyosuke Suzuki, director of forex at Societe Generale (OTC:SCGLY).

Against the safe-haven yen, the dollar was at 107.57 yen , stuck in a well-worn range between 106 and 108 over the last several weeks.

President Donald Trump said on Monday he was deploying thousands of heavily armed soldiers and law enforcement to halt violence in the U.S. capital and vowed to do the same in other cities if mayors and governors fail to regain control of the streets.

The protests erupted over the death of George Floyd, a 46-year-old African-American who died in Minneapolis police custody after being pinned beneath a white officer's knee for nearly nine minutes.

Market risk sentiment was hurt only slightly on Monday when Bloomberg reported that China had told state-owned firms to halt purchases of soybeans and pork from the United States, raising concerns that the trade deal between the world's two biggest economies could be in jeopardy.

The Australian dollar, often seen as a proxy bet on the strength of the Chinese economy, fetched $0.6794 , having reached its highest levels since late January.

The Reserve Bank of Australia is expected to keep rates on hold when it meets later on Tuesday.

The Chinese yuan stood flat at 7.1230 per dollar in offshore trade, near its highest levels in almost two weeks.


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Dollar on defensive as markets pin hopes on global economic recovery

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The dollar was on the defensive on Tuesday as investors stuck to hopes of a global economic recovery despite heightened concerns over U.S.-China tensions and mass protests in many U.S. cities over the death of a black man in police custody.

The U.S. dollar's index against a basket of six major currencies (=USD) stood at its weakest level since mid-March, at 97.790.

The euro fetched $1.11295 (EUR=), little changed so far on Tuesday but holding near a 2-1/2-month high of $1.1154 touched on Monday.

Sterling traded at $1.2491 , having hit a one-month high of $1.2506.

U.S. manufacturing activity eased off an 11-year low in May and although the reading was weaker than forecast, it fit into markets' expectations that the worst of the economic downturn was behind as businesses reopen.

"There are some potential flash points such as U.S. demonstrations and China-U.S. tensions. But, on the whole, the market is still moderately risk-on," said Kyosuke Suzuki, director of forex at Societe Generale (OTC:SCGLY).

Against the safe-haven yen, the dollar was at 107.57 yen , stuck in a well-worn range between 106 and 108 over the last several weeks.

President Donald Trump said on Monday he was deploying thousands of heavily armed soldiers and law enforcement to halt violence in the U.S. capital and vowed to do the same in other cities if mayors and governors fail to regain control of the streets.

The protests erupted over the death of George Floyd, a 46-year-old African-American who died in Minneapolis police custody after being pinned beneath a white officer's knee for nearly nine minutes.

Market risk sentiment was hurt only slightly on Monday when Bloomberg reported that China had told state-owned firms to halt purchases of soybeans and pork from the United States, raising concerns that the trade deal between the world's two biggest economies could be in jeopardy.

The Australian dollar, often seen as a proxy bet on the strength of the Chinese economy, fetched $0.6794 , having reached its highest levels since late January.

The Reserve Bank of Australia is expected to keep rates on hold when it meets later on Tuesday.

The Chinese yuan stood flat at 7.1230 per dollar in offshore trade, near its highest levels in almost two weeks.


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This Is Why The Stock Market Is Rallying While The Economy Tanks

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Forecasters are calling for a second-quarter GDP contraction of at least 30%, according to the Blue Chip survey, while the model from the Federal Reserve Bank of Atlanta (GDPNow) calls for an much steeper 52% retrenchment. Yet, the S&P 500 index is down less than 7% this year after rallying more than 35% from its low point of March 23. There seems to be a huge disparity between the economy and the stock market.

There is a way to reconcile both numbers, however, if the economy turns around quickly and ends up the year nearly unchanged. In that case, the stock market rally would be justified and could even have some more room to go. Admittedly, this seems hard to believe right now. But is it possible?

Current economic numbers look decidedly dismal. As I showed in my previous post, some have shattered records by huge margins. Second-quarter GDP forecasts are correspondingly bleak. The contraction estimated by the GDPNow model is much worse than the Blue Chip average, but with numbers that large, the margin of error is certainly huge.


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Q4 GDP numbers on expected lines but lockdown pain yet to be seen: Experts

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The Indian economy grew at 3.1 percent in March quarter of FY20 and the full-year growth came in at 4.2 percent against 6.1 percent in FY19.

Experts said the numbers are on expected lines and the full impact of lockdown will be felt in the coming quarters.

"GDP growth rate for Q4FY20 is in the expected line as growth was moving in a downward trajectory. The impact of COVID was limited in the last quarter of FY20, though the slowdown in global economic activities affected India as well," Deepthi Mathew, Economist at Geojit Financial Services, told Moneycontrol.

Experts feel the data could be revised given more than a week of lockdown in March. The GDP numbers for Q1, Q2 and Q3 of FY20 have already been revised downwards. The Q3FY20 GDP was revised to 4.1 percent (from 4.7 percent.

The nationwide lockdown in India started on March 25 and currently we are in the lockdown 4.0.

"The statutory deadline extension for financial returns hit data flow to calculate GDP. Hence quarterly and annual GDP estimates of FY20 is likely to undergo revision," a Ministry of Statistics and Programme Implementation statement said.

"The Q4 GDP data looks much better but there could have been some data problem given the lockdown started in last week of March. So revision in numbers can't be ruled out. It is too early to conclude the impact of lockdown on economy," Dharmakirti Joshi, Chief Economist at CRISIL, told CNBC-TV18.

"My hunch is that exports contracted by 35 percent, auto sales were down by 45 percent, which indicated that industrial activity was getting impacted in March, aviation was also shut. So the data may not have captured the lockdown period data," Joshi said.

The gross value added (GVA) grew 3 percent in March quarter 2020, while the full year (FY20) growth was 3.9 percent against 6 percent in FY19.

The Q4 growth was supported by agriculture which grew 5.9 percent (against 3.6 percent QoQ and 1.6 percent YoY), and mining which showed growth at 5.2 percent (against 2.2 percent QoQ and (-4.8) percent YoY).

"Agriculture numbers are definitely good and are also going to be good numbers given the strong rabi harvest numbers. So agri become a hope for FY21," Joshi said.

Private Consumption Expenditure growth in Q4 dipped to 2.7 percent compared to 6.6 percent in previous quarter and Gross Fixed Capital Formation growth contracted further to (-6.5) percent against (-5.2) percent on sequential basis, but Government Final Consumption Expenditure grew to 13.6 percent against 13.4 percent QoQ.

"The private consumption expenditure falling is not surprising, infact it already showed deceleration. Gross Fixed Capital Formation (GFCF) was contracting even in earlier two quarters and this was the third quarter where contraction continued. Given the headwinds facing by India, we see deeper contraction in GFCF data," Anubhuti Sahay, Head of South Asia Eco Research at Standard Chartered Bank told CNBC-TV18.

Dharmakirti Joshi also feels GFCF will go down further. "Agri, mining will be saviours, but are not enough to offset the impact which is seen in other sectors."

Indranil Pan of IDFC First Bank said given significant contraction in revenue, the government expenditure will not hold on same levels if private consumption expenditure continues to fall in FY21.

Hence experts expect the double digit contraction in first quarter FY21 GDP, but as there could be some improvement in economic activity after easing lockdown measures from May onwards, the full year degrowth could be in single digit.

"These are starting points, the data captured only one week of lockdown, so the pain is ahead definitely in Q1FY21 which will come out later in the year. We see 35 percent degrowth in Q1FY21 GDP due to already tepid growth in economy and lockdown for more than 2 months," Anubhuti Sahay said.

"India could degrew 4% in FY21 as once the recovery starts, we should see some improvement in numbers on May onwards due to some relaxation from lockdown," she added.

Joshi also said, "My broad sense is that 2019-20 like story will be played out in FY21 as well but would be much deeper."

Indranil Pan, the Group Economist at IDFC FIRST Bank expects a contraction 14-15 percent in Q1FY21 GDP and (-6.4) percent for FY21 due to stalled economy for two-and-half-month by COVID-19-led lockdown.

"Trajectory was anyway on downwards during COVID. Therefore there is definitely some headwinds on the structural front. Health problem will have significant impact," he said.

Here is what other experts said:

Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank

“Expectedly, the 4QFY21 GDP slowed down across manufacturing, construction and trade hotels, partly reflecting the sudden halt in economic activity led by the COVID-related response. Probable, some data gaps could also have made the data patchy. While the slowdown in economy was already underway, the COVID-19 related disruptions has further exaggerated the issue. We expect the 1QFY21 to record a sharp contraction of over 14 percent, with only a gradual recovery thereafter. For the year, we continue to expect contraction in GDP (over 5 percent). Accordingly, expansionary fiscal and monetary response will have to continue to aid the economy.”

Joseph Thomas, Head of Research - Emkay Wealth Management

The sluggishness in economic growth which was a feature of the numbers in the Q2 and Q3 of the last financial year, manifested itself once again in the Q4 growth rate falling further to 3.10 percent. This number fully reflects the slowdown which the economy was going through in the last two years, and it also amply highlights the importance of a demand-led recovery for sustainable future growth. This number is more important than a quarterly number. Because this number would be the base against which the impact of the lockdown and consequent demand destruction, loss of productivity and employment would mapped. What could be the fall from this level us the question that would be asked. It goes without saying that the number for Q1 of the current financial year will be much lower bordering on the negative as we get the first estimates after a month. That the core sector output contracted by 38 percent in April is an indicator of the dent which the lockdown is likely to bring forth in economic activity and the resultant numbers.

B Gopkumar, MD & CEO at Axis Securities

GDP growth at 3.1 percent is not a major surprise considering the challenges that started in March 2020 and Q1FY21 will be even weaker. This information is already factored by the market and now focus has shifted to opening of economy. The pace at which demand will be restored to normalcy is critical. There have been some encouraging signs in consumer staples, digital businesses and Pharmaceuticals. However, large ticket consumer discretionary revival will take time. Overall, businesses have drawn plans to deal with the situation and economy will improve from hereon and demand will pick up with each passing month.

Dhiraj Relli, MD & CEO at HDFC Securities

The Q4FY20 GDP number came in better than expected at 3.1 percent (11-year low) though the downward revision in the previous three quarters takes away some of that relief. The poor data on growth of India’s eight infrastructure sectors contracting by a record 38.1 percent in April led by cement, steel, electricity and coal was partly on expected lines. However this data does not portend well for Q1FY21 unless we see a fast and complete lifting of lockout with safeguards in place.

The fact that Manufacturing sector has grown at 0 percent for the whole of FY20 versus 5.7 percent in previous year highlights the extent of issues in that sector and prompts faster and thorough measures to kickstart manufacturing given that the first two months of FY21 are washouts and job creation remains a top priority in the current times. Construction is the other sector needing immediate attention. Agriculture could do well even in FY21 after growing 4 percent in FY20 and lead the sectoral growth in FY21, contrary to its negative contribution in all earlier years of negative GDP growth.

Deepthi Mathew, Economist at Geojit Financial Services

GDP data for Q1FY21 would slip to the negative territory, with the impact of COVID on the economy fully captured.

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