Can We Count on Mr Trump and China in 2017?

All eyes this week were on the US Capitol as Mr Donald Trump formally replaces President Obama in the White House. Yesterday, Mr Trump took the Oath of Office and was sworn in as America's 45th president.

Speculations about what effect his presidency will have on the international community are doing the rounds. The US is the biggest economy on earth by far; any decisions made by the US government will have a big impact far and wide.

Mr Trump is said to take executive action shortly after he takes office, reversing some of Barack Obama's policies.

On thing Trump plans to change as he takes office is his nation's terms of engagement with other countries. He has promised to abandon the Trans-Pacific Partnership (TPP) trade deal, for example.

The TPP is a trade agreement signed (but not yet ratified) by twelve countries accounting for 40% of global GDP and 33% of global trade. The landmark deal was slated to reduce tariffs and boost trade among the signatories. Neither China - the so-called global factory - nor India are part of it.

If the TPP goes for a toss, it would support Indian exports in the global framework. From a premium edition of The 5 Minute WrapUp:

    Anyway, that's good news for India. This is because TPP could pose a serious blow to India's trade ambitions, especially when it comes to exports.

    Take for instance, textiles. India is among the top textile exporters. A lot of companies in the organized and unorganized sector get a lion's share of their revenues from supplying to member nations of TPP. As per the industry reports, India exported US$ 41 billion of textiles. The import duties in regions like US range upto 50%. Vietnam being a key competitor in textile exports, and a TPP member as well, could jeopardize India's share by being able to sell at much lower tariff (as low as nil). So with Trump unlikely to support TPP, India may heave a sigh of relief.
However, Trump's presidency could pose a few threats to India. He's clearly opposed to free trade, trade agreements, and the importation of goods from lower wage countries.

If he restricts trade, Indian manufacturing and IT sector jobs will feel the impact.

All we can do is wait and see.

In other news, China's gross domestic product (GDP) grew 6.8% on-year in the fourth quarter. This was slightly above expectations and signaled that growth is stabilising in China.

For the full year, China's economy grew 6.7%. Consumption accounted for 64.6% of GDP in 2016, while per capital consumption rose 8.9% on year. Property development also aided the growth, with total investment rising 6.9% for the year. This was up against 5.9% seen in 2015.

This growth, however, was the slowest in more than a quarter of a century.

To make matters worse, Liaoning's governor Chen Qiufa, speaking at a legislative meeting on Tuesday, admitted that from 2011 to 2014, economic data from the province's cities and counties had been plagued with false statistics. The news validates long-held suspicions that China has been cooking its books.

Chinese trade has flagged in recent months. Exports have dropped in dollar terms. Furthermore, the prospect of an interest rate hike in the US has led to further declines in the yuan's value. Economists are of the view that continuing stimulus measures by the central bank are masking the deeper problems of industrial overcapacity and high levels of corporate debt in China.

Despite these concerns, a report in Vivek Kaul's Inner Circle (requires subscription) claims there are the dragon economy has plenty of legs left to stand on. The issue points out some positive signs emerging in the Chinese economy, without undermining the longer-term risks and challenges.

Many investors are worried that China's slowing economy will be a concern for Indian markets. Even so, a crash can be an ideal time to bet on solid Indian companies that are well-shielded from any adverse developments in China. As our friends at Equitymaster say, these companies can turn into bargain buying opportunities.

United Kingdom Prime Minister Theresa May said Britain will quit the EU single market when it leaves the European Union (EU).

In her speech this week, May also promised to seek the greatest possible access to the European markets. However, she said Britain would aim to establish its own free trade deals with countries far beyond Europe, and impose limits on immigration from the continent.

We believe the eurozone is still a mess. And it's going to have major consequences for the global financial markets, including the Indian stock markets.

Global markets ended the week on a dull note with most of the markets ending flat or in the negative territory. Brazil and China's indices were the only ones to end the week on a positive note, with gains of 0.5% and 0.3% respectively.

Britain's FTSE was the biggest loser with a 1.9% fall amid concerns over May's Brexit speech.

Indian Indices Log Around 0.7% Losses

Back home, the Indian indices ended their weekly session on a negative note. The BSE Sensex Sensex was down 0.75% for the week, while the NSE Nifty was down 0.61%.

FMCG and telecom stocks led the sectoral indices this week. The Pharma, IT, and metal sectors were the biggest losers.

During the week, the International Monetary Fund (IMF) lowered India's growth forecast for FY17 by a full percentage point to 6.6% because of demonetisation.

However, the IMF expects India's growth to pick up at a slower pace in 2017-18, at 7.2%, against its earlier estimate of 7.6%.

The government of India also pitched for a 7.1% GDP growth in FY17. This estimate is still below the 7.6% growth recorded in FY16.

Vivek Kaul, our big-picture expert, isn't quite satisfied with the quality of GDP growth in the current fiscal. Something's amiss, he says. But after some number crunching, he seems to have got to the bottom of it.

Government expenditure, which is not sustainable in the long term, will drive around one-third of the increase in GDP in the current fiscal. Here's Vivek in a recent addition to his Diary:

    The trouble is that this way of creating economic growth by the government spending its way out of trouble, cannot continue indefinitely. At the end of the day The government has a limited amount of money at its disposal. If India has to continue growing at greater than 7 per cent, then private sector investment needs to pick up and that doesn't seem to be happening currently due to various reasons.
Nifty 50 Traded Dull for the Week
 

It was a dull week for the Indian markets. Last week, the Nifty 50 Index broke out of an important resistance (now support) of 8,250-8,300 levels and rallied strongly to a high of Rs 8,461. But the index did not sustain up there for long. The Index opened on flat on Monday and traded in a very tight range near 8,400 till Thursday. On Friday, it opened gap down and slipped sharply to close 1% down. The Nifty 50 finished the week 51 points down. It seems the index is aiming to re-test its support levels of 8,250-8,300.

COMMODITIES

Gold Continues Momentum

Gold witnessed buying interest during the week. It opened its session on a positive note and managed to continue momentum later on. Gains during the start of the week were seen amid positive cues from the global markets. The yellow metal also witnessed positive trend midweek. This came as safe-haven demand for gold boosted amid news for a hard Brexit. During the end of the week, gold continued its momentum and ended its weekly session on a positive note.

Gold Extends Uptrend


Silver Follows Lead from Gold

Silver traded in tandem with gold during the week. Gains were seen on back of a firm trend in global financial markets overseas. It opened the weekly session higher and continued its momentum thereon. Slight losses were seen midweek amid weak global cues. However, silver managed to recover these losses during the end of the week. Finally, on Friday, silver witnessed gains and ended its weekly session on a positive note.

Volatile Trades for Crude Oil

Crude oil traded on a mixed note during the week. Volatile trades during the start of the week came on the back of a weaker dollar and doubts over the output cuts by oil producers. Midweek, crude oil faced selling pressure on estimates of rising stockpiles in the US. Finally, on Friday, crude oil traded on a negative note and ended its session with losses.

Crude Oil Ends in the Red

Natural Gas Ends on a Negative Note

Natural gas traded on a mixed note for the week. It opened its session higher and continued the momentum at the start of the week. However, losses started to kick in midweek and continued towards the end of the week. On Friday, natural gas ended its session in the red.

CURRENCIES

Dollar Witnesses Volatility

The dollar traded on a volatile note during the week. Buying interest came from overseas at the start of the week. Comments by fed chair Janet Yellen about another interest rate hike aided the rally. Come midweek, the dollar witnessed slight losses amid global volatility. Finally, it ended its session with marginal losses on Friday.

Dollar Trades on a Mixed Note


Euro Ends with Marginal Losses

The euro traded on a negative note during the week. It started the week down and remained under pressure midweek as well. Losses came ahead of the news of a 'hard Brexit'. A strong dollar overseas also weighed on the euro. The euro managed to recover some of the above losses at the end of the week and ended the session with marginal losses against the rupee.

Pound Ends in the Green

The pound came under selling pressure during the start of the week. Losses continued midweek amid global volatility. However, on Friday, the pound managed to recover and ended the week on a positive note.

Yen Trades on a Mixed Note

On Monday, the yen opened its session on a positive note. However, it failed to maintain the momentum and witnessed losses during the latter part of the week. Losses were seen on the back of a firm dollar overseas. Estimates for further rate hikes in 2017 also weighed on the yen. During the end of the week, the yen witnessed selling pressure and ended its session with marginal losses against the rupee.

Commodities 13th Jan 20th Jan % Change
Gold/10 gms 28,380 28,625 0.86%
Silver/kg 40,887 41,425 1.32%
Crude Oil/barrel 3,586 3,683 1.45%
Natural Gas/mmBtu 233.10 221.80 -4.85%
Currencies 13th Jan 20th Jan % Change
USD / INR 68.28 68.22 0.09%
EUR / INR 72.75 72.57 0.25%
GBP / INR 83.49 83.81 -0.38%
JPY / INR 59.62 59.22 0.67%

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