Dollar approaches 20-year highs, US Federal Reserve meeting in focus

 

NEW YORK (Reuters) - The dollar held just under a 20-year high against a bushel of monetary forms on Monday before a normal Federal Reserve rate climb this week, with brokers zeroed in on the potential for the U.S. national bank to take on a much more hawkish tone than many anticipate.

The Fed has adopted an undeniably forceful strategy to financial arrangement as it handles expansion that is taking off at its quickest pace in 40 years. It is normal to climb rates by 50 premise focuses and declare plans to lessen its $9 trillion monetary record when it finishes up its two-day meeting on Wednesday.

However the odds are viewed as low, a few financial backers are looking for the chance of a 75 premise point climb, or a quicker speed of accounting report decrease than right now anticipated.

"A ton of dealers are guessing that the Fed won't withdraw from this hawkish position and you might in any case see a few hawkish amazements, and that is the reason the dollar is probably going to clutch its benefits heading into the gathering," said Edward Moya, a senior investigator with OANDA in New York.

Remarks by Fed Chairman Jerome Powell at the finish of the gathering will likewise be examined for any new signs on whether the Fed will keep on climbing rates to fight increasing cost pressures regardless of whether the economy debilitates...KNOW MORE

Rising oil can burn Rs 1-trillion hole in govt coffers in FY23: SBI report

 

Rising oil costs that have shot up more than 21% in the beyond one month to hit $105 a barrel as of late in the background of the continuous Russia - Ukraine international struggle mean something bad for the Indian government and can agitate its monetary math.

As indicated by a report by the financial wing of State Bank of India (SBI), rising raw petroleum costs can consume an opening as large as Rs 1 trillion in government's money chests in monetary 2022-23 (FY23). Regardless of the ascent in oil costs, the Indian government has kept a top on the retail selling costs of auto fills - petroleum and diesel - unaltered since November 2021 as a libertarian measure given the looming get together races across five states.

In view of the current worth added charge (VAT) design and taking Brent rough cost of $100 - $110 per barrel, SBI accepts diesel and petroleum costs ought to have been higher by Rs 9-14 each at this point.

"If the Government, be that as it may, cuts the extract obligation on oil based commodities and forestalls the costs of petroleum and diesel from rising, then, at that point, it will bring about an extract obligation loss of Rs 8,000 crore for a month. Assuming we accept that the decreased extract obligation go on in the following financial and expecting petroleum and diesel utilization develops around 8-10 percent in FY23, then, at that point, the income loss of the Government would associate with Rs 95,000 crore to Rs 1-trillion for FY23. In this specific situation, the FY23 spending plan numbers that are fixed safely would go about as a reasonable counter repeating support for such income misfortune," composed Dr. Soumya Kanti Ghosh, bunch boss monetary consultant State Bank of India in a new report.

RBI keeps retail inflation within target level for over 12 months

International News

The Reserve Bank on Wednesday kept the retail inflation within its target level for over 12-month, and has projected it to stay within a band of 3.5-3.7 per cent during the second half of this fiscal.
The target for second half of 2019-20 has been set at 3.5-3.7 per cent with risks evenly balanced, the RBI said in the monetary policy review here.
CPI (Consumer Price Index) retail inflation is projected at 3.1 per cent for the second quarter this fiscal.
"The Monetary Policy Committee (MPC) notes that inflation is currently projected to remain within the target over a 12-month ahead horizon," the Reserve Bank of India said.
CPI-based inflation for first half of the next fiscal, beginning April 2020, has been projected at 3.6 per cent.
The RBI has cut the key repo rate - at which it lends to banks - by 0.35 per cent to 5.40 per cent.
In its last policy review in June, the apex bank had projected retail inflation at 3.4-3.7 per cent for the second half of this fiscal.

 The MPC also decided to maintain the accommodative stance on the monetary policy, the RBI said...Read More

Explainer: How trade tensions changed the Fed's outlook in seven weeks

Company News

On May 1, the Federal Reserve viewed the American economy as having a solid footing and risks to the outlook were muted.

That assessment has weakened demonstrably since, and Fed Chair Jerome Powell and many of his colleagues inside the US central bank on Wednesday signalled readiness to cut interest rates as required to shore up a US economic expansion that appears to be losing steam.
What exactly changed in seven weeks to alter the outlook so much?

Tump's trade disputes are weighing

America's trade relationship has grown more strained in recent weeks with China and Mexico, two of the United States' top trading partners. When the Fed held its April 30-May 1 meeting, Washington and Beijing appeared to be closing in on a trade deal that would avoid an escalation in the trade war between the two countries.

That changed on May 5, when President Donald Trump unleashed an angry barrage of tweets, complaining that China had reneged on promises it had made in the talks and threatening to ratchet up tariffs on Chinese goods.

The negotiations unravelled and Washington hit China with higher tariffs on some $200 billion worth of goods on May 10, prompting China to retaliate. Washington is also threatening tariffs on another roughly $300 billion in Chinese imports if the two sides don't reach a deal soon, with Trump and Chinese President Xi Jinping expected to meet at a Group of 20 summit in Japan next week.


 Trump then turned his sights on Mexico, and on May 30 he threatened new tariffs on all Mexican imports if America's southern neighbour did not do more to stop the flow of migrants across the US border.

Achilles heel: High oil prices to complicate India's inflation, says report

Economy News
The surging price of oil is an Achilles heel for the Indian economy, complicating its inflation, current account, fiscal balance and currency outlook, a market report by Singapore's DBS banking group has said.

"The sharp rally in oil weighed on all asset classes; USD-INR jumped to 69.87 high before closing slightly lower, while equity markets ended in red," said the report by Economist Radhika Rao and FX Strategist Philip Wee of the DBS Group Research

For bond markets, the worry is two-pronged with the concern being that high oil prices might pose a fresh risk to the fiscal math, if subsides return, by extension requiring higher borrowing, said the duo.
Also, pipeline inflation risks due to high oil prices further raise the hurdle for rate-cuts.
The Reserve Bank of India's minutes from the April meeting had already left the market divided-- some see members as keeping the door open for rate cuts on worries over growth, whilst rest see the RBI cautious over inflationary risks, said Rao and Wee.

"These themes are likely to keep 10-Year INR bond yields (generic) above 7.45% this week, with break below to be shallow," said the duo in the report.

"2028 paper tested past 7.6% yesterday (Monday) and is likely to move in the higher 7.55-7.65% band this week.


 We had noted last week that short-tenor yields (1Y-2Y) have already bounced off lows; nonetheless sharper jump in 10Y yields saw the curve return to a widening bias," the report said.

Political risks to rate cut, what India's women economists predict for 2019

Economy & Policy:

India’s economy, among the world’s fastest growing, faces risks from a global slowdown and political instability after a national election. That’s the view of the top women economists covering the nation.

Slower growth and benign inflation will boost chances of back-to-back interest rate cuts by the Reserve Bank of India in April, according to the three analysts, who are ranked among the most accurate female forecasters in Bloomberg surveys on growth and inflation. The rankings are based on two years of contributed surveys.

Political risks are also intensifying as tensions with Pakistan mount and Prime Minister Narendra Modi’s re-election bid gets more heated.

Here’s a look at what the economists expect for the rest of the year:

Sonal Varma

Chief India Economist, Nomura Holdings Inc.

Top woman forecaster for quarterly gross domestic product
Growth: Weaker global demand will affect everything from India’s exports to manufacturing, Varma said, while tight financial conditions will hurt domestic demand and political uncertainty will delay investment decisions. She forecast growth of 6.8 percent in the fiscal year starting April versus Reserve Bank of India’s 7.4 percent.


 Interest Rates: “The Reserve Bank reaffirmed its focus towards headline inflation and its willingness to support growth, which suggests the February policy cut was not a ‘one and done’,” Varma said. Based on her assessment of slower growth and inflation remaining below RBI’s projection, she expects another rate cut in April of 25 basis points...Read More

How will Indian economy do in 2019? 'Animal spirits' hint to a tame start

Economy & Policy

India’s economy started the New Year still hungover from the sluggish showing in end-2018, stoking expectations for more monetary stimulus from the central bank.
A set of indicators tracked by Bloomberg to measure “animal spirits” -- a term coined by British economist John Maynard Keynes to refer to investors’ confidence in taking action -- showed weaker indicators outnumber stronger ones 4-3 in January. A pullback in exports and business activity weighed on sentiment.

While India’s inflation-targeting central bank cut interest rates earlier this month to prop up economic growth, Governor Shaktikanta Das kept the door open for more when he noted that “growth impulses have weakened and there is a need to spur private investment and strengthen private consumption.”
While a rates review is scheduled for April, a pulse check for the economy is due later Thursday, when the government will release gross domestic product data for the quarter ended December. As of Wednesday, economists forecast expansion to have slowed to 6.8 percent from 7.1 percent in the previous quarter.

Here’s a breakdown of what the indicators suggest:

Business Activity

The seasonally adjusted Nikkei India Composite PMI Index was unchanged at 53.6 in January. While the manufacturing sector was in robust shape, the dominant services sector, which contributes more than 50 percent of GDP, showed signs of cooling.
A key factor that kept a check on services activity was a softer expansion in new work, with companies noting only a moderate increase in sales.

Exports

On a sequential basis, exports declined in January from a month ago. While shipments grew 3.7 percent on an annualized basis, economists doubt the pick up

 will be sustained as the global economy slows...Read More