Investor sentiment has been dominated by fears of a second wave of the coronavirus pandemic that could prolong lockdown measures.
Join us as we follow the top business news through the day.
Not sure whether India will gain if businesses shift from China due to COVID-19, says Abhijit Banerjee
In an interview, the economic Nobel laureate raised doubts over India’s ability to attract businesses from China and the country’s economic rescue plan.
PTI reports: “Nobel laureate Abhijit Banerjee has said that there is no certainty that India will gain from shifting of businesses from China in the wake of coronavirus pandemic.
Speaking to a Bengali news channel ABP Ananda on Monday evening, Banerjee said that everyone is blaming China for the COVID-19 outbreak as it has origin there.
“China is being blamed now for the coronavirus outbreak. Even people are saying that India stands to benefit as businesses will shift from China and come to India. But that may not be true,” the economist said.
Banerjee, who is also a member of Global Advisory Board formed by the West Bengal government to prepare a roadmap for COVID-19 response in the state, said, “What happens if China depreciates its currency. In that case, Chinese products will be cheaper and people will continue to buy their products“.
Talking about the proportion of gross domestic product (GDP) planned to be spent by the Centre for a relief package, Banerjee said countries like the US, UK and Japan are spending a high share of their respective GDPs.
“India plans to spend less than one per cent of its GDP at Rs 1.70 lakh crore. We should spend much increased proportion of GDP,” he said.
The Centre had announced a more than Rs 1.70-lakh crore package to alleviate the hardship of the poor hit by economic disruption due to coronavirus outbreak.”
India’s automakers warn of up to 45% sales drop as economy slumps amid pandemic
The Indian auto sector, which was reeling under a crisis even before the lockdown, it seems, could witness a drastic fall in sales if the economy falls into a recession.
Reuters reports: “India’s automakers have warned that total automobile sales could fall as much as 45% in the current fiscal year in a worst-case scenario as economic growth slumps due to the COVID-19 pandemic, and they are seeking government help through the crisis.
The Society of Indian Automobile Manufacturers (SIAM), an industry trade body, told government officials last week that if India’s economy contracts by 2% in the year starting April 1, sales of cars, trucks and motorbikes could decline by as much as 45% from a year before.
SIAM presented two more scenarios to the government — one where the economy grows by 2%-3%, which would lead to a 20% decline in auto sales, and a second where growth stagnates from last year, resulting in a 35% decline in sales.
The trade body represents most major automakers in India, including Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Hero MotoCorp and the local units of Toyota Motor, Hyundai Motor, Ford and Volkswagen.
Global consultancy McKinsey & Co estimated in April that if India’s lockdown was extended until mid-May, the economy could shrink by 2%-3% in the current fiscal year, while rating agency Moody’s said on Friday the country could see 0% growth.”
Oil prices climb as Saudi Arabia commits to deeper production cuts
The battle between the bulls and bears continues in the oil market.
Reuters reports: “Oil futures rose on Tuesday, boosted by an unexpected commitment from Saudi Arabia to deepen production cuts in June in a bid to help drain the glut in the global market that has built up as the coronavirus pandemic crushed fuel demand.
Brent crude futures advanced 0.7%, or 22 cents, to $29.85 at 0650 GMT, after hitting an intraday high of $30.11 a barrel.
U.S. West Texas Intermediate (WTI) crude futures were up 1.8%, or 44 cents, at $24.58 after touching an intraday high of $24.77.
Saudi Arabia said overnight it would cut production by a further 1 million barrels per day (bpd) in June, slashing its total production to 7.5 million bpd, down nearly 40% from April.
“This reduction in production provided excellent optics encouraging other OPEC+ members to comply and even offer additional voluntary cuts, which should quicken the global oil markets’ rebalancing act,” Stephen Innes, chief global market strategist at AxiCorp, said in a note.”
Asian shares decline on jitters over new outbreaks of virus
Fears of a second wave of the coronavirus pandemic have spoiled Asian investor sentiment.
Reuters reports: “Shares were mostly lower Tuesday in Asia as worries over fresh outbreaks of coronavirus cases overshadowed hopes over reopening economies.
Japan’s benchmark ended lower after briefing logging gains, while shares fell in Hong Kong, Shanghai and Sydney. That followed a mixed session on Wall Street, where gains for technology and health care stocks helped offset more prevalent losses elsewhere.
Optimism over plans for reopening in many countries after shutdowns aimed at battling the pandemic has taken some hits from reports of new waves of infections in states and countries that are further ahead in lifting lockdown measures. Investors pointed to small but disconcerting increases of infections in South Korea, China and elsewhere.
All said, risk appetite is on the wane today. And that merely acknowledges that re-opening economies is riddled with risks; struggling between the devil and the deep blue sea,” Hayaki Narita of Mizuho Bank said in a commentary.
An uptick in cases in South Korea has added to concern over the potential for rebounds in new coronavirus infections in places that relax restrictions. More than 100 new cases were reported that were linked to bars and clubs, 64 of them in the capital Seoul.”
Once taboo, investors begin to imagine negative U.S. rates
Could the United States be the next major economy pushing interest rates below zero?
Reuters reports: “Negative interest rates in the United States were once unimaginable. The coronavirus has changed that.
While the Federal Reserve has all but ruled it out, the sweeping economic and financial-markets impact of the pandemic has forced investors to give serious thought to the implications of such a drastic policy shift.
Rate options, which gauge monetary policy expectations, on Monday implied a 23% probability that the key federal funds rate will go below zero by the end of December, according to BofA Securities data, which cited short expiry options on one-year U.S. swap rates. That compares with a 9%-10% probability last week.
Fed funds futures are pricing in rates of about one basis point below zero by June 2021 as the pandemic hammers the U.S. economy toward its steepest downturn since the Great Depression.
“It’s gone from theoretical to distinctly possible,” said Michael Purves, chief executive of Tallbacken Capital Advisors.
He still thinks the Federal Reserve is “so far away” from actually going negative. Yet the unprecedented price moves show a market bracing for the unthinkable, and investors preparing for consequences ranging from a bank profit squeeze to sub-zero bond yields, money market turmoil and capital outflows.
Scott Minerd, global chief investment officer at Guggenheim Partners, sees a chance that bond buying from the Fed pushes benchmark U.S. yields to uncharted negative territory.
A projection on Guggenheim Partners’ website shows benchmark 10-year yields hitting -0.5% at the end of 2021.
Investors worry that the United States crossing the zero bound may have bigger disruptive side effects in money markets than the years of negative rates in Europe and Japan.”
Maruti resumes operations at Manesar plant on single shift basis
Operations at both Manesar and Gurugram facilities were suspended since March 22.
“Production has commenced at the Manesar plant and the first car would roll out today (Tuesday),” Maruti Suzuki India (MSI) Chairman R.C. Bhargava said.
The facility has commenced operations on a single shift basis with up to 75 per cent employees allowed currently, he added.
Bonds sell off on tsunami of fresh debt
Rupee falls 22 paise to 75.95 against US dollar in early trade
The weakness in domestic equities has weighed on the rupee, which has depreciated against the US dollar.
PTI reports: “The rupee depreciated 22 paise to 75.95 against the US dollar in opening trade on Tuesday amid strengthening American currency overseas and weak opening in domestic equities.
Forex traders said the local unit opened weak against the greenback tracking gains in the US gollar. Moreover, selloff in domestic equities and rising coronavirus cases in the country weighed on investor sentiment.
The local unit opened at 75.89, then lost further ground and fell to 75.95 against the US dollar, down 22 paise over its previous close.
It had settled at 75.73 against the US dollar on Monday.
“Most Asian currencies depreciated against the US Dollar this Tuesday morning as investors remained cautious about re-opening the economy too quickly, which could result in a second wave of the COVID-19 infections,” Reliance Securities said in a research note.
On the domestic front, market participants will be keeping an eye on inflation and Index of Industrial Production number that will be released later in the day.”
Nobel laureate Duflo says cash transfer to poor makes sense economically as well
One more economist has weighed in favor of a larger cash stimulus for the poor to help revive the economy.
PTI reports: “Pitching for cash transfers to the poor for helping them deal with the impact of the COVID-19 crisis, Nobel laureate Esther Duflo on Monday said doing so is not just a moral necessity, but an economic one as well, as it can create demand which will benefit all.
Duflo, a professor of economics at MIT, who was recognised for her work along with husband Abhijit Banerjee, also asked businesses to lobby for such efforts by the government in their own interest.
It can be noted that a lot of analysts have been flagging concerns about the impact of the crisis on individual finances since the lockdowns began.
The government has so far announced income support and upping works under the employment guarantee scheme as part of a Rs 1.7 lakh crore aid package but not taken a universal basic income type cash transfer package.
It is the responsibility of the government to ensure the cash transfer and this is something businesses should be keenly interested in, not just because it is the right thing to do morally, but it is the most responsible thing to do economically, Duflo said.”
Non-essentials demand to rise, says Walmart
Walmart India on Monday reported a ‘steadying of consumption’ across several essential categories in the last few weeks.
The e-tailer, which operates 28 Best Price stores across nine States, now expects some pent-up demand for non-essentials.The company works on a membership-based wholesale platform, where kiranas, offices, institutions, hotels, restaurants and caterers as well as the army and paramilitary source items such as groceries, personal care and other essentials.
As per Anuj Singh, chief merchandising officer, Best Price, Walmart India, a couple of weeks into the lockdown, supply pipelines had depleted across consumption categories while the demand from kiranas for items such as tea and biscuits continued to be strong.
Indian shares slip amid fears of new coronavirus wave; banks slide
The benchmark indices continued to show weakness this morning after a weak performance in yesterday’s session.
Reuters reports: “Indian shares fell on Tuesday, tracking Asian markets that dropped on worries about a second wave of coronavirus cases, following news of fresh infections in the Chinese city where the COVID-19 pandemic originated.
The NSE Nifty 50 index was down 1.15% to 9,133.70 by 0355 GMT, and on course to fall for the second straight day, while the S&P BSE Sensex fell 1.27% to 31,161.65.
The central Chinese city of Wuhan reported five new cases on Monday, casting doubts over efforts to lower coronavirus-related curbs as businesses restart and individuals went back to work.
The Nifty banking index fell the most among the 12 sectoral indexes, with a 2.2% drop.
India’s retail inflation data for April was due later on Tuesday. A Reuters poll predicted inflation likely eased to a five-month low last month as India’s lockdown and subsequent sluggish demand drove price pressures down.
As of Tuesday, COVID-19 cases in India had surged well past 70,000 and deaths neared 2,300.”