Of French Elections, Berkshire AGM, and the Dream Run in Indian Markets

Fed Vice Chairman William Dudley said that the Federal Open Market Committee (FOMC) is on track to reduce its asset purchases this year or the next as the US economy is well on its way to recovery.

Along with that, Boston Fed President Eric Rosengren urged his policymaking colleagues to raise interest rates three more times this year and consider starting to shrink the central bank's balance sheet after their next hike to avoid creating an overheated economy.

In its latest monetary policy meet last week, the Fed kept interest rates unchanged. While doing so, the central bank downplayed weak first-quarter economic growth and emphasised the strength of the US labour market.

The Fed signaled that it's still on track for two more interest rate increases this year. As per the central bank, consumer spending has continued to be solid, business investment has firmed, and inflation has been running close to its target in the recent months.

An important part in the Fed minutes is that most Fed policymakers think the central bank should take steps to trim its US$4.5 trillion balance sheet later this year as long as the economic data holds up.

However, trimming the balance sheet would tighten financial conditions.

Normalising the balance sheet could also impact emerging markets.

Since 2008, the Fed's swelling balance sheet has propped up the US economy. And it has aided the rally in emerging markets all these years.

So any change to the Fed's balance sheet will have an immediate impact on emerging stock markets.

The above announcements by the Fed have fueled volatility and uncertainty in stock markets across the globe.

Only time will tell how this all pan out. Meanwhile, we'll keep you posted on the latest developments.

In other news, centrist candidate Emmanuel Macron won the French presidential election, defeating far-right candidate Marine Le Pen.

Mr Macron won by 66.06% to 33.94% to become the country's youngest president at 39. He will also become the first president from outside the two traditional main parties since the modern republic's foundation in 1958.

Mr Macron is a pro-business liberal centrist and a strong supporter of the European Union (EU). His campaign pledges included a 1,20,000 reduction in public-sector jobs, a cut in public spending by 60 billion euro, and a lowering of the unemployment rate to below 7%. He's also vowed to ease labour laws and give new protections to the self-employed.

That said, he noted that the task facing him and the country was enormous.

The victory of Mr Macron is seen as a market-friendly development as many anticipate his presidency to reduce the risk of a Brexit-like shock in France.

While the above projections bring relief for France, the area presently is a mess. If one has to track the ground realities, France is most likely headed for a constitutional crisis in 2017. As mentioned in an issue of Vivek Kaul's Inner Circle (requires subscription) states:

    ...35.29% of the experts believe France is the most likely location of the next constitutional crisis. With leading French leftist Francois Fillon plagued by personal controversies (his wife received public money for work she never did) the French establishment has yet to come up with a clear alternative to Marine Le Pen of the National Front.

Apart from the above developments, value investors across the globe were also busy tracking the highlights of Berkshire's 53rd AGM.

In the AGM, Warren Buffett and his nonagenarian partner Charlie Munger spoke on a wide range of topics and answered many of the audiences' questions, which brought valuable insights.

Our friends at Equitymaster have released a detailed note on all the key takeaways from the latest Berkshire AGM.

You can access the note by clicking here.

Speaking of super investors like Warren Buffett and Charlie Munger, do you know who the successful super investors of India are? And more importantly, how do they pick stocks? Which stocks are they picking? And how have they been able to make a killing when ordinary investors never seem to make any serious money?

Equitymaster research analysts Kunal and Rohan have made getting access to all of these insights easier than ever. They compiled all of their interviews for their 'Superinvestor Project' into a special report called The Superinvestors of India.

To know more about India's best value investors and their stock picking approach, download a free copy of - The Super Investors of India.

Global financial markets ended the week on a positive note with a boost from emerging markets. Share markets in Brazil, Hong Kong and Japan were up 3.8%, 2.8% and 2.2%, respectively. However, share markets in United States and France were down by 0.5% each.

The Brazilian markets were up on the expectation of the economy exiting deep recession. The Brazilian economy grew in the first quarter. Finance Minister Henrique Meirelles listed metrics such as steel output and car sales to illustrate how the economy was exiting a deep recession.

US markets ended the week lower by 0.5% this week. This was on the back of soft retail sales and monthly inflation data that raised concerns about slow economic growth. Further, it also raises question about whether the Federal Reserve could maintain its aggressive outlook for interest rates this year.

Indian Indices Scale Lifetime Highs

Back home, Indian stock markets closed higher by 1.1%. The markets saw a record closing high during the week on the back of various domestic and global economic developments.

Stocks from realty sector, telecom sector and auto sector rallied during the week after some good results and positive management commentaries for FY18.

The dream run in Indian share markets is showing little signs of coming to an end. This we say as domestic equity benchmarks, the BSE Sensex and NSE Nifty, scaled life-time highs this week.

Most of the buying interest was seen on the back of Indian Metrological Department's (IMD) forecast of an above normal rainfall this calendar year.

Above normal rains in the upcoming monsoon season could help revive the rural demand, which has remained been long subdued.

Given our high dependence on monsoon rains, the agricultural sector is the most vulnerable to the changing rain patterns.

So a normal monsoon will lead to higher disposable income in the hands of farmers, which in-turn will boost rural consumption.

A normal monsoon would also help keep the inflation low and increase the chances of the country's central bank retaining its easy money policy.

However, there have been many instances in the past of forecasts gone wrong. So we can't blindly rely on the department's predictions. Only time will tell how the monsoons pan out this year.

In other news, PM Narendra Modi directed that all proposals sent to the cabinet must state the number of jobs they can generate.

This comes as the Modi government goes all out to ensure it delivers on the promise of creating ten million jobs.

India has a big unemployment crisis, which could derail the growth of the economy. Unemployment over the past many years has hardly changed.

As per Vivek Kaul's analysis, a little more than twelve million individuals will join the workforce every year in the years to come. This works out to around one million a month. And at this rate, the Indian workforce is expected to be larger than that of China by 2030.

The demographic dividend benefits a country if the government of the day is able to create the right environment to foster job creation. And from what we see, we are failing miserably on this front.

But this is not the only crisis hitting India's economy now. To know more, refer to Vivek's special report.

Market participants in the domestic markets were also keenly tracking the IPO space.

S Chand and Company made its debut on D-Street this week. Shares listed at Rs 707 apiece on the BSE, up 5.52% over the issue price of Rs 670.

Investors were also tracking the Rs 12 billion IPO of state-owned Housing and Urban Development Corporation (HUDCO) that received bidding this week.

The firm is a wholly owned government company with 46 years of experience in providing loans for housing and urban infrastructure projects in India.

HUDCO classifies its housing finance loans into social housing, residential real estate, and retail finance, which is branded as HUDCO Niwas. Its urban infrastructure finance loans include projects relating to water supply, roads & transport, power, emerging sectors, commercial & social infrastructure, and sewage & drainage.

Nifty Hits a New Lifetime High


The Nifty 50 Index opened 26 points gap up on Monday and traded positively to hit a new lifetime high on Wednesday. It opened 42 points gap up on the next day but did not hold up as the index witnessed some profit booking for the last two days of the week. Finally, the Nifty ended the week up 1.25%. The RSI Indicator has formed a negative divergence with the index, indicating a loss of upside momentum. This might halt the rally for a while. In that case, 8,950-9,000 is the level to watch for.

COMMODITIES

Gold Extends Downtrend

Gold traded on a negative note during the week. While it witnessed buying interest at the start of the week, it failed to maintain momentum. Most of the losses were seen on the back of weak global clues. Some respite was seen during the end of the week on the back of a positive trend in precious metals. However, despite these gains, gold ended its weekly session with losses.

Gold Trades in the Red


Silver Trades in Tandem with Gold

Silver traded in tandem with gold during the week. While it opened its session on a positive note, it failed to maintain momentum during the week. Losses were seen on the back of a weak global trend and selling bias in the precious metals market. During the end of the week, silver traded on a volatile note and ended its session with marginal gains.

Crude Oil Rises After Cues for Supply Cut

Crude oil sought respite and witnessed buying interest this week. Most of the gains came after Saudi Arabia reported that it would cut supplies to Asian customers as OPEC tries to counter the rising US output threatening to derail its attempts to end a sustained global crude glut.

As reported by Reuters, state-owned Saudi Aramco is set to reduce oil supplies to Asian customers by about 7 million barrels in June as part of OPEC's agreement to reduce production. More production cuts will curb crude oil supplies and support Brent crude oil prices.

Crude oil prices have been remarkably silent over the last two years. Prices have remained within a tight range, rarely dropping below US$40 or rising above US$60. Volatility has crashed. And if you are trading crude oil, it's critical to understand why this has occurred.

Vivek Kaul's Inner Circle (requires subscription) explains exactly what triggered the taming of crude oil prices.

At any rate, crude oil traded in the green and ended its weekly session on a positive note.

Crude Oil Ends on a Positive Note


Natural Gas Trades in the Green

Natural gas traded on a positive note during the week. It opened its session in the green and continued its uptrend during the start of the week. Most of the gains came after the US Energy Information Administration (EIA) reported that natural gas supplies rose by 45 billion cubic feet for the week ended 5 May. This was lower than expected and therefore aided natural gas prices. During the end of the week, natural gas traded on a positive note and ended its session in the green.

CURRENCIES

Dollar Ends Lower against the Rupee

The dollar traded on a mixed note during the week. While it opened its session lower, gains were seen after the Fed officials hinted at more interest rate hikes this year. The announcement led the dollar to trade higher midweek. But despite these gains, the dollar witnessed selling pressure against the rupee. During the end of the week, it stood lower against the rupee and ended its session with losses.

Dollar Witnesses Selling Pressure


Euro Ends in the Red

The euro traded on a negative note during the week. While it opened its session higher, it failed to maintain momentum. Losses were seen on the back of volatility in the global financial markets and French presidential elections. During the end of the week, the euro continued to slip and ended its weekly session on a negative note.

Volatile Trades for Pound

The pound traded on a mixed note during the week. It opened its session on a positive note and extended the rise during the start of the week. During the end of the week, the pound witnessed losses amid weak global cues. On Friday, it continued its downtrend and ended its session with weekly losses.

Yen Extends Downtrend

The yen traded on a negative note during the week. Losses were seen on the back of a host of global economic developments that fueled volatility for financial markets. During the end of the week, the yen continued its downtrend and ended its session with losses.

Commodities 05th May 12th May % Change
Gold/10 gms 28,072 28,005 -0.24%
Silver/kg 38,018 38,155 0.36%
Crude Oil/barrel 2,969 3,066 3.27%
Natural Gas/mmBtu 210.20 219.70 4.52%
Currencies 05th May 12th May % Change
USD / INR 64.54 64.45 -0.14%
EUR / INR 70.83 70.16 -0.94%
GBP / INR 83.51 82.90 -0.73%
JPY / INR 57.48 56.67 -1.41%

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