That global financial markets have witnessed tremendous turbulence over the past 6 months isnt an understatement by any stretch of imagination. Though the markets seem to be on a path to recovery, the pain for investors isnt likely to evaporate anytime soon. The financials sector continues to hog the limelight, the news of a possible stake sale in Lehman Brothers and the seperation of its investment bank and wealth management by UBS AG, the world's largest wealth manager being two prominent recent developments within the sector.
Like i had written in one of the earlier posts, the Dollar seems to be holding onto its gains against the major currencies. The strength in the greenback has seen another asset class featured regularly in the headlines recently, Commodities. The sector has witnessed a fall across the board, with Crude oil leading the way. Apprehensions over rising inflation in several countries due to higher commodities prices have eased significantly. Is it the end of the Commodities story? I beg to differ, instead see these moves as an adjustment to expectations of a sharper deceleration in global economic growth. It looks more like a correction within a "supercycle" of which we might have seen one leg already, definitely there's more to come. Higher commodity prices are needed to ensure a supply side response and providing an impetus to the discovery of alternative supply sources. Given the present macro economic picture, the weakness in commodity prices looks set to continue in the near term, though it could be a different picture over the next 9-12 months.
An easing of nerves has also been seen in the Indian equity markets as the benchmark BSE Sensex has gyrated in a range between 14000-16000 in the near term. Is the pain a thing of the past for the Indian stock market? Well not quite yet, owing to two major factors namely Inflation and the upcoming general elections in 2009. Inflation continues to be a worry for the Indian government,however the sharp slide in crude oil prices has eased the pinch a little. However that doesnt mean the tightening cycle in India is over, we could be in for another round of interest rate hikes though this time the hikes could be of a lower magnitude. The markets could be in a wait and watch mode till the formation of the new government at the Centre, as it would provide clarity on the future course of economic policy.
Finally some light seems to be emerging at the end of the tunnel, as of now it seems more like a ray of hope which could further brighten with the passage of time. The rocky ride experienced by investors earlier has become a little less bumpy, though we could yet be a far distance away from a smooth ride on.
Saturday, August 23, 2008
Thursday, August 14, 2008
Well done Abhinav.
That was the first thought that came to my mind after i heard the news that Abhinav Bindra had won India's first ever individual Gold medal at the Olympics. Its difficult to find adjectives to describe the achievement, words like monumental and stupendous wouldnt suffice. Even as the nation of a billion plus people rejoiced, the poise and composure Abhinav showed after clinching the medal showed the mettle he's made of. Having scaled the pinnacle of the sport without the backing of corporate sponsorship, apart from the Mittal group makes the victory even sweeter. Its a real surprise how a country as big as ours has been unable to produce a Gold medal winner earlier.
I'm sure the sight of Abhinav standing on the podium with the Tricolor being unfurled and the National Anthem playing in the background wont be forgotten in a hurry, perhaps never. Kudos Abhinav, you have made each Indian proud. Youngsters aspiring to take up sports now have a new icon to look up to. All this while the United States have Michael Phelps, who holds the record for the most Gold medals in the Olympics, while Australia had the " Thorpedo" Ian Thorpe. Two swimmers who symbolised the future of sport and set many a swimming pool on fire with their ability. Though there's a long way to go in terms of matching the achievements of Phelps and Thorpe, like Abhinav himself said its not the destination but the beginning of a new journey. Here's wishing you all the very best for the future. Saludos!!
Monday, August 11, 2008
Finally, some rain in Hyderabad!!
I am sure the local people in Hyderabad wouldnt have the same feeling when it started pouring during the evening of Friday August 8th. I used the word local, as i'm amongst the droves of people who have moved to Hyderabad in search of greener pastures. The rain reminded me of the showers seen in Mumbai, the city i belong to and a place where such spells of rain are fairly common. Experience with long spells has better equipped the people of Mumbai to deal with torrential downpours. However in Hyderabad the case seems different as the city hardly sees the kind of rain experienced in Mumbai. Atleast this was the first instance when it has rained with such intensity in the city during the last one year.
The rain is accompanied by its share of problems. Huge traffic jams, power cuts and flooding in the low lying areas. Luckily, the apartment that i reside in was spared the power cuts, though the adjacent street adjacent to it did resemble a large flowing rivulet. Also i felt blessed as the rain started pelting after i got home in the evening, i really sympathize with the folks who were stuck at several places due to bad traffic or had to suffer long power cuts. As i settled on the couch looking at the rain pouring outside, my thoughts immediately drifted to hot pakodas with tea as is the norm during the monsoons in Mumbai. I really miss those days, though the spell of weekend rain did provide a sense of deja vu.
The rain is accompanied by its share of problems. Huge traffic jams, power cuts and flooding in the low lying areas. Luckily, the apartment that i reside in was spared the power cuts, though the adjacent street adjacent to it did resemble a large flowing rivulet. Also i felt blessed as the rain started pelting after i got home in the evening, i really sympathize with the folks who were stuck at several places due to bad traffic or had to suffer long power cuts. As i settled on the couch looking at the rain pouring outside, my thoughts immediately drifted to hot pakodas with tea as is the norm during the monsoons in Mumbai. I really miss those days, though the spell of weekend rain did provide a sense of deja vu.
Is the Dollar back for good?
I bet this was the question uppermost in people's mind given the way global markets have been reacting lately. The week gone by being a case in point. Strength in the US Dollar saw a tumultous ride across markets, with the Euro plummeting the most in 6 years and weakness across the board in commodities. A special mention needs to made of commodities since it was the rally in this asset class which has stoked inflationary pressures globally and forced central banks to embark on a tightening spree.
Coming back to the question is the greenback going to see a sustained rally? Well, the present news flow seems to suggest Dollar strength in the near term, though its unlikely the rally will sustain over the medium term. The rationale behind this is the US is grappling with an economic slowdown amidst high inflationary pressures. The Federal Reserve which seems to be doing a tight rope walk at the moment, resisting pressures to raise interest rates. A few other signs do look ominous. The US labor market seems to be weakening, the credit crisis is thought to be only half way through, though losses suffered by institutions are likely to diminish here on. The housing market remains an area of concern. A statement from the CEO of one of the banks to emerge relatively unscathed from the credit crisis, JP Morgan Chase mentioned the outlook for prime loans, given to people with a good credit record was "terrible". A spread of the crisis to prime loans could have disastrous consequences for the US economy already reeling from losses at Fannie Mae and Freddie Mac, institutions which own or have guaranteed about $5 trillion in mortgages.
Another crucial factor for the Dollar strength has been expectations for weaker growth in the Euro zone. Economic data from the Euro zone clearly suggested an imminent economic slowdown, the markets seemed to ignore what was always apparent. It needed a statement from the ECB Chairman Jean Claude Trichet to see market participants hitting the eject button, and the Euro getting slammed subsequently. Can a similar thing happen with the US Dollar? The release of economic data will be the best gauge for this.
The present spell of weakness in commodities is being viewed as signs of a top being put in place for several commodities most notably Crude oil. It isnt an exaggeration at all to say, it is Crude oil which is driving international markets. I view the present weakness as a "correction" in a rally which has seen prices rising from $ 50 to $ 148 in less than two years. A move to $ 100 seems likely, though it is better to watch the markets closely than get carried away in the din surrounding falling crude prices.
To sum it up, the foreign exchange markets seem to have factored in most of the negatives for the US economy while the re alignment towards lower growth in the Euro zone has well and truly been set in motion. However the equation could change once again should something unforeseen by the market happen, like a rate cut from the FOMC. Will such a scenario materialise? I prefer to wait for the situation to fan out, as i watch what looks like a sea of red on the Reuters terminal!!
Coming back to the question is the greenback going to see a sustained rally? Well, the present news flow seems to suggest Dollar strength in the near term, though its unlikely the rally will sustain over the medium term. The rationale behind this is the US is grappling with an economic slowdown amidst high inflationary pressures. The Federal Reserve which seems to be doing a tight rope walk at the moment, resisting pressures to raise interest rates. A few other signs do look ominous. The US labor market seems to be weakening, the credit crisis is thought to be only half way through, though losses suffered by institutions are likely to diminish here on. The housing market remains an area of concern. A statement from the CEO of one of the banks to emerge relatively unscathed from the credit crisis, JP Morgan Chase mentioned the outlook for prime loans, given to people with a good credit record was "terrible". A spread of the crisis to prime loans could have disastrous consequences for the US economy already reeling from losses at Fannie Mae and Freddie Mac, institutions which own or have guaranteed about $5 trillion in mortgages.
Another crucial factor for the Dollar strength has been expectations for weaker growth in the Euro zone. Economic data from the Euro zone clearly suggested an imminent economic slowdown, the markets seemed to ignore what was always apparent. It needed a statement from the ECB Chairman Jean Claude Trichet to see market participants hitting the eject button, and the Euro getting slammed subsequently. Can a similar thing happen with the US Dollar? The release of economic data will be the best gauge for this.
The present spell of weakness in commodities is being viewed as signs of a top being put in place for several commodities most notably Crude oil. It isnt an exaggeration at all to say, it is Crude oil which is driving international markets. I view the present weakness as a "correction" in a rally which has seen prices rising from $ 50 to $ 148 in less than two years. A move to $ 100 seems likely, though it is better to watch the markets closely than get carried away in the din surrounding falling crude prices.
To sum it up, the foreign exchange markets seem to have factored in most of the negatives for the US economy while the re alignment towards lower growth in the Euro zone has well and truly been set in motion. However the equation could change once again should something unforeseen by the market happen, like a rate cut from the FOMC. Will such a scenario materialise? I prefer to wait for the situation to fan out, as i watch what looks like a sea of red on the Reuters terminal!!
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