Market Movers: All eyes on RBI policy; oil prices down; US-China trade war back in focus & more
A look at top macro triggers that may move market on Wednesday.
RBI Policy Out Today
India’s central bank may raise benchmark reference rate by a quarter%age point today -- the second time in two months -- citing upside risks to inflation, an ET survey ahead of this week’s bi-monthly policy meeting on setting broader financing costs showed. Wednesday’s decision is likely to be a close call, with odds of a hike marginally higher than a pause. The central bank may retain a neutral policy stance as it aims to balance rising inflation and still recovering growth.
Core Sector Growth at 7-mth High
Buoyed by an expansion in output of cement, refinery and coal, infrastructure industries grew to a seven-month high of 6.7% in June, official data showed on Tuesday. Core sector had grown 4.3% in May 2018 and 1% in June last year.
Trump May Raise the Bar In Tariff War with China
The Trump administration plans to propose slapping a 25% tariff on $200 billion of imported Chinese goods after initially setting them at 10 percent. The items include food products, chemicals, steel and aluminum and consumer goods ranging from dog food, furniture and carpets to car tires, bicycles, baseball gloves and beauty products. Raising the proposed level to 25% could escalate the trade dispute between the world’s two biggest economies.
Credit Growth Shoots Up
The pace of growth in credit offtake has more than doubled on the back of a higher growth services and retail loan growth. Credit to industry, which had contracted last year, has witnessed a small growth this year, latest RBI data shows. On a year-on-year (y-o-y) basis, non-food bank credit increased by 11.1% in June 2018 as compared with an increase of 4.8% in June 2017, according to RBI data on sectoral flow of bank credit.
Oil Prices Fall As US Inventory Rises
Oil prices fell on Wednesday after industry data showed U.S. stockpiles of crude unexpectedly rose, starting the new month in negative territory after the largest monthly decline in two years in July. October Brent crude futures LCOV8 dropped 29 cents, or 0.4%, to $73.92 a barrel by 0044 GMT, adding to a 1.8% loss in the previous session. U.S. crude futures CLc1 were down 44 cents, or 0.6%, at $68.32 a barrel.
Q1 Fiscal Deficit at 68.7% of Budgeted Target
India reported a fiscal deficit of $62.57 billion for April-June, or 68.7% of the budgeted target for the current fiscal year compared with 80.8% a year ago. Net tax receipts in the first quarter of 2018-19 fiscal year that ends in March 2019 were 2.37 trillion rupees, government data showed. India expects to trim the deficit to 3.3% of GDP this fiscal year, after meeting an upwardly revised fiscal deficit target of 3.5% of GDP in 2017-18.
US Fed Meet Starts
The US Federal Reserve's preferred price index held steady in June near a six-year high and just above the Fed's two percent target, but energy prices fell for the month as the Fed started its two-day policy meeting on Tuesday. It is expected leave the benchmark interest rate untouched for another six weeks. The outcome of the meeting will be out late today.
SC Overrules Own Verdict on Tax Exemption
The Supreme Court has overruled its 21-year-old verdict and held that benefit of any ambiguity in notification related to tax exemptions must be interpreted in favour of the State. In 1997, the apex court had said that in case of any ambiguity in a tax exemption provision or notification, it must be interpreted so as to favour the assessee claiming the benefit. However, SC reiterated that in event of ambiguity in a taxation liability statute, the benefit should go to the subject or assessee.
Employees’ Social Security Contribution May be Pared
Your take-home salary could go up leaving you more to spend — though it could be at the cost of your savings — as the government is mulling lowering the social security contribution at least 2%age points, with employers also contributing less.
POLICIES & MORE
- Bribe givers can now be punished with a jail term of maximum of seven years under a new anti-corruption law that has got assent from President Ram Nath Kovind. Besides, public servants -- politicians, bureaucrats and bankers among others -- have also been given a 'shield' from prosecution in the legislation that makes it mandatory for investigating agencies such as the CBI to take prior approval from a competent authority before conducting any enquiry against them.
- Early, on schedule or simultaneous polls, the Election Commission has kick-started its 2019 Lok Sabha election planning 3-4 months in advance of its usual schedule to prepare for all poll scenarios and weather conditions.
- The government has decided to withdraw the controversial Financial Resolution and Deposit Insurance (FRDI) Bill and has informed about it to the Chairman of the parliamentary panel examining the proposed legislation.
- Any group company of an online retailer or marketplace may not be allowed to directly or indirectly influence the price or sale of products and services on its platform, a move that could completely restrict e-tailers from giving deep discounts.
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Rupee Up: The rupee gained 13 paise to close at a fresh two-week high of 68.54 against the dollar on Tuesday on expectations that the US Fed is likely to keep rates unchanged.
Long-term Bond Yields Down: Government bonds (G-Secs) rebounded on renewed buying support from banks and corporates. The 7.17% G-Secs maturing in 2028 gained to Rs 96.0175 from Rs 95.90, while its yield edged down to 7.77% from 7.79%. The 6.68% G-Secs maturing in 2031 went-up to Rs 89.61 from Rs 89.55, while its yield softened to 7.97% from 7.98%.
Shorter-term Bond Yields Down: The 6.84% G-Secs maturing in 2022 rose to Rs 96.4950 from Rs 96.3950, while its yield eased to 7.80% from 7.82%. The 7.59% G-Secs maturing in 2026, the 6.65% G-Secs maturing in 2020 and the 7.37% G-Secs maturing in 2023 were also quoted higher to Rs 97.57, Rs 98.68 and Rs 98.05 respectively.
Call Rates Down: The overnight call money rates ended lower to 6.00% from Monday's closing level of 6.20%. Its resumed higher to 6.25% and moved in a range of 6.35% and 6.00%.
Liquidity: The Reserve Bank of India, under the Liquidity Adjustment Facility, purchased securities worth Rs 14,301 crore in 18-bids at the overnight repo operations at a fixed rate of 6.25% as on Tuesday, while its sold securities worth Rs 19,761 crore in 40-bids at the overnight reverse repo auction at a fixed rate of 6.00% as on July 30.