Of Fed Interest Rate Hike, Global Trade War Fears, and Top Cues During the Week

The Federal Reserve announced its widely anticipated decision and raised interest rates by 25 basis points this week. It further projected three rate hikes in 2018, citing a strong outlook for US economic growth.

Sentiments also remained somewhat cautious after US President Donald Trump announced tariffs on Chinese goods and thereby stoking fears of a trade war.

Towards the above development, China said it doesn't fear a trade war with the US and announced plans for reciprocal tariffs on US$ 3 billion of imports from the US.

Reportedly, China plans tariffs on imports of US pork imports, recycled aluminium, steel pipes, fruit and wine. China will also pursue legal action against the US at the World Trade Organization (WTO) in response to the US planned tariffs on steel and aluminium imports.

Policy makers across the world are warning of a brewing trade war that could undermine the broadest global recovery in years. Meanwhile, business groups representing companies ranging from Walmart Inc. to Amazon.com Inc. are warning US tariffs could raise prices for consumers and sideswipe stock prices.

Japanese stock markets witnessed choppy trade as pension funds and retail investors lapped up beaten-down shares, helping offset a strong yen and mixed manufacturing data. The manufacturing sector in Japan continued to expand in March, albeit at a slower pace, the latest survey from Nikkei revealed with a manufacturing PMI score of 53.2, down from 54.1 in February.

Meanwhile, the People's Bank of China raised its short-term interest rates for the first time this year in reaction to the Fed's rate hike. The central bank lifted its 7-day reverse repo rate by 5 basis points to 2.55% from 2.50%. This was the first-rate action after the appointment of Yi Gang as central bank governor.

Global indices witnessed heavy selling pressure during the week. Germany (DAX) ended their weekly session 4.06% down, London market (FTSE) ended their weekly session 3.38% down, and France (CAC) ended the week 3.55% down. Asian markets too witnessed selling. The Nikkei Index ended the week 4.88% down, the Hang Seng Index was down 3.79% and the Shanghai Index was down 3.59%. US markets witnessed highest selling pressure and ended their weekly session with a loss of 6.54%.

Indian Stock Markets Witnesses Selling Pressure

Back home, the Indian indices ended their weekly session on a negative note. The BSE Sensex was down 1.75% for the week, while the NSE Nifty was down 1.93%.

All the sectoral indices ended their weekly session in the red. Realty (-6.86%), Metal (-6.05%) and Banks (-3.98%) were the biggest losers for the week.

In news from stocks in the IPO space, Bharat Dynamics' IPO made a dull debut this week and got listed at Rs 370, a discount of over 15% to the issue price of Rs 428.

The Rs 9.6-billion initial public offering (IPO) of state-run Bharat Dynamics barely sailed through in the subscription phase, with the retail portion subscribed just 1.3 times

Headquartered in Hyderabad, Bharat Dynamics is the sole manufacturer of Surface to Air Missiles (SAM), Torpedoes and Anti-Tank Guided Missiles (ATGM) in India. It is a public sector undertaking under the Ministry of Defence.

The company has grown its revenues and profits at a compounded annual growth rate of 130% and 5% respectively in the preceding three years. At the upper price band of Rs 428, the company is valued at 16 times it's FY17 earnings.

In the news from the banking sector, the government said that Punjab National Bank (PNB) expects a Rs 145 billion loss on account of frauds in this financial year, including contingent liabilities, following the scam by Nirav Modi.

The amount involved in the alleged fraud involving Nirav Modi, Mehul Choksi and their companies is now pegged at almost Rs 140 billion. The total loss reported by the bank due to frauds was Rs 3.4 billion in FY16, Rs 26 billion in FY17, and Rs 145 billion (including contingent liabilities) in FY18 till date.

Note that the recent fraud at Punjab National Bank in conjunction with the diamond merchant Nirav Modi has put the spotlight on the growing bad loan problems in Indian banks.

Nifty 50 Index Ends 2% Down
Nifty 50 Index Ends 2% Down

The Nifty 50 Index traded on a negative note during the week.

On Monday, it opened the session up but slipped lower to end the session 100 points down. It opened gap down on the next trading day but recovered sharply and traded positive until mid-week. But the bulls couldn't hold the gains and the index continued to slip lower. On Friday, the carnage continued as the index opened 146 points gap down on back of global markets sell-off. It finally ended the weekly session 2% down.

Last week, we saw the index trading close to the 200 day moving average (DMA) which could have acted as a good support. But it broke below the 200 DMA. In fact, the index closed just below the 10,000 - 10,100 zone which acted as a good support in the past.

So does this indicate that the index will continue to slip lower? In that case, 9,700 is level to watch out for.

COMMODITIES

Gold Hits 52-Week High

Gold traded on a strong note during the week. On Monday, it opened the session gap down but recovered strongly to end the session positive. It witnessed some selling pressure in the next trading session but the selling was temporary as the commodity recovered sharply from mid-week onwards to touch a new 52-week high. The buying was seen as traders searched for safe-haven amid stock markets crash. Finally, on Friday, gold witnessed solid buying interest and ended the weekly session with 2.26% gains.

Gold Trades in an Uptrend

Crude Oil Witnesses Buying Interest

Crude oil traded on a positive note during the week. It opened its session down on Monday but recovered sharply and traded north until mid-week. The buying was seen after a surprise decline in US inventories and as concern persisted over possible disruption to West Asian supply. The buying was also due to Saudi's plan to extent production curbs to 2019. The black gold witnessed some profit booking on Thursday but the up move continued on Friday and the commodity ended its weekly session with 5% gains.

Crude Oil Surged 5% for the Week

CURRENCIES

Dollar Witnesses Selling Pressure

The dollar traded on a volatile note during the week. It opened its session higher on Monday and continued to trade positively until Tuesday close. It rose on some dollar-buying by importers and banks and a choppy domestic equity market. Midweek, the currency witnessed some profit booking. Finally, on Friday, the currency witnessed some selling pressure and ended the weekly session flat.

Dollar Ends Flat

Commodities 16th Mar 24th Mar % Change
Gold/10 gms 30,224 30,907 2.26%
Silver/kg 38,358 38,874 1.35%
Crude Oil/barrel 4,065 4,266 4.94%
Natural Gas/mmBtu 175.10 169.00 -3.48%
Currencies 16th Mar 23rd Mar % Change
USD / INR 65.02 65.02 -0.01%
EUR / INR 80.17 80.20 0.04%
GBP / INR 90.76 91.71 1.04%
JPY / INR 61.54 61.89 0.56%

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1 Responses to "Of Fed Interest Rate Hike, Global Trade War Fears, and Top Cues During the Week"
KD
24 Mar, 2018
What trade war? Why do not China pay for intellectual property? Why do not they respect patents? These people are copy masters with no creativity. Like 
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