Of US Inflation Data, PNB Fraud Case, And Other Top Cues During the Week

Inflation in the US rose quicker than expected in January. The Labor Department said its Consumer Price Index (CPI) increased 0.5% last month. This was seen as households paid more for gasoline, rental accommodation and healthcare. The CPI rose 0.2% in December. The year-on-year increase in the CPI, however, was unchanged at 2.1% in January.

Excluding the volatile food and energy components, the CPI shot up 0.3%. This was seen as the largest increase since January 2017 and followed a 0.2% rise in December.

The year-on-year rise in the so-called core CPI was unchanged at 1.8% in January.

The data prompted renewed concerns that the Federal Reserve could raise interest rates more quickly than expected. Many expect that a tightening labour market and increased government spending would further boost inflation and will force the Fed to be more aggressive in raising interest rates this year. This, in turn, would slow down the economic growth.

The Fed has forecast three rate hikes this year. The first increase expected at its next policy meeting in March.

In its latest meeting, the Fed said it expects "further gradual" rate increases. The target range for the federal funds rate currently is 1.25% to 1.50%.

Note that with the US economy chugging along for many months, the Fed is now gradually easing off the stimulus it provides to the economy by raising interest rates to more normal levels.

How does a US interest rate hike affect Indian investors?

The instant effect is foreign money moving out of India's vaults. This means a slight correction in the share market in India, albeit temporarily.

While this might provide a good buying opportunity in long-term stocks, the main thing to look forward would be capex and earnings trends.

In the end, Indian investors are better off staying informed about the corporate earnings revival than Fed rate hikes.

In other news, Japan's government reappointed Bank of Japan (BOJ) Governor Haruhiko Kuroda for another term. The government nominated Kuroda to serve another five-year term when the current one ends in April.

The development comes as a sign that the BOJ will be in no rush to dial back its massive stimulus programme.

The reappointment also comes amid the ongoing volatility where Japanese and global markets have been rattled in recent weeks on expectations major central banks will ease their stimulus.

Note that Kuroda has said to maintain the BOJ's ultra-easy policy. However, he has also refuted arguments that the stimulus programme needs to be expanded and has signaled the possibility of raising interest rates.

The BoJ has pushed back the timing to reach its price target six times since it deployed its massive stimulus programme in 2013. It now hopes that consumer inflation will achieve its 2% target by March 2020, as signs of strength in the economy and a tight job market boost wages giving households higher purchasing power, allowing firms to hike prices.

What remains are many issues that can hamper Japan's economic growth going forward.

Also, the recent win of Japanese Prime Minister Shinzo Abe in elections also signals the continuation of Abenomics - the ultra-loose monetary and fiscal policies. These policies have influenced excessive money printing, too much debt, and too much government intervention in Japan.

As Ankit writes in a recent edition of Equitymaster Insider... "With Abenomics, Japan has gone overboard trying to revive its economy. The Bank of Japan is a Top 10 holder in over 90% of Japanese stocks. And it remains one of the biggest buyer of Japanese stocks."

It would be interesting to see the impact central bank's ultra-easy money policies will have on the economy going forward. Meanwhile, we'll keep you updated on all the recent developments in this space.

Global financial markets rallied this week and brushed aside a rise in global borrowing costs.

The S&P 500 and the Dow Jones Industrial Average have rallied for six consecutive sessions since falling last week as investors took in their stride the possibility of more interest rate hikes from the Federal Reserve. The indices notched their largest five-day percentage increases since December 2011, up 4.3% and 5.6%, respectively.

European stocks ended the week higher, with most major indices showing strength in a variety of sectors as concerns about rising interest rates and inflation apparently eased. Among country benchmarks, the UK's FTSE was up 1.9% and Germany's DAX added 1.7%, while France's CAC 40 outperformed, up 2.9%.

In Asia, Japan's Nikkei rose 1.6%, with investors relieved to see the government appoint Bank of Japan Governor Haruhiko Kuroda for another term. Chinese stocks advanced in a holiday-shortened week, paring some of their big declines from the previous week's global sell-off, as the country prepared for the Lunar New Year holiday. China's Shanghai Composite was up 2.2% over the week.

Indian Indices End the Week on a Flat Note

Back home, the BSE Sensex closed nearly 300 points lower on Friday as bank stocks dragged after more banks disclosed their exposure in the PNB fraud case.

The PSU Bank index was the biggest underperformer, ending 9% lower during the week. The BSE-Sensex ended the week on a flat note. Meanwhile, the BSE MidCap was down 0.2% and Smallcap fell 0.8% this week.

Punjab National Bank share price was in focus this week. The stock witnessed selling pressure after the bank revealed that it has detected a US$ 1.77 billion (about Rs 114 billion) scam where billionaire jeweler Nirav Modi allegedly acquired fraudulent letters of undertaking from a branch in Mumbai to secure overseas credit from other Indian lenders.

In the news from the IPO space, the Rs 9.8 billion initial public offering (IPO) of Aster DM Healthcare Ltd witnessed an overall subscription of 1.33 times on Thursday, the last day of its share sale.

If you want to know more about IPOs and whether they are right for you, you can download our free special report - How to Get Rich with IPOs.

Nifty 50 Index Trades on a Volatile Note
Nifty 50 Index Ends at Life-time High

The Nifty 50 Index traded on a volatile note during the week. On Monday, it opened the session 63 points gap up and continued to trade higher. It opened gap up for the next three sessions, but couldn't sustain up on any of these days and slipped lower. On Friday, the index slipped 93 points to end the weekly session flat.

As mentioned in our previous note, the 10,500 level is an important support level for the stock. This level which acted as a strong resistance on the way up is now acting as a strong support for the index as per the change of polarity principle.

Currently, the index is trading slightly below the 10,500 level. If it sustains below it, we can see the bears dominating in the sessions to come. On the flip side, if it recovers to trade above 10,500, the bulls could be back in action.

COMMODITIES

Gold Clocks 2.6% Gains

Gold traded on a positive note this week. Most of the gains were seen on the back of a weaker dollar overseas and also due to a firm trend in precious metals. Apart from the above, increased buying by jewelers and investors also aided the uptrend in gold this week. The yellow-metal continued its uptrend during the end of the week and clocked 2.6% weekly gains.

Gold Trades on a Positive Note

Crude Oil Trades on a Positive Note

Crude oil traded witnessed buying interest this week. It started its session on a positive note and continued its uptrend. Some losses were seen amid concerns about surging US production.

Note that crude oil prices have corrected by about 10% in February. Rising US oil production and crude stockpiles, as well as a stock market sell-off, heaped pressure on oil prices this month.

It will be interesting to see how the OPEC and Russia react to the increasing oil supply from the US in the coming days.

Crude Oil Ends Higher

CURRENCIES

Dollar Slides to Lowest Since 2014

The dollar witnessed selling pressure this week and hit its lowest level since 2014. Most of the losses were seen as negative sentiment took away the support the dollar could take from rising Treasury yields. Also, rising worries over the United States' twin budget and current account deficit amid a splurge in government spending and hefty corporate tax cuts weighed on the dollar. Towards the end of the week, the dollar recovered some losses and ended the week lower by 0.39%.

Dollar Witnesses Selling Pressure

Commodities 9th Feb 16th Feb % Change
Gold/10 gms 30,009 30,816 2.69%
Silver/kg 37,578 38,665 2.89%
Crude Oil/barrel 3,807 3,942 3.55%
Natural Gas/mmBtu 167.20 165.50 -1.02%
Currencies 9th Feb 16th Feb % Change
USD / INR 64.52 64.27 -0.39%
EUR / INR 79.12 80.26 1.44%
GBP / INR 89.67 90.42 0.84%
JPY / INR 59.16 60.56 2.37%

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