Welcome to our very first edition of Finance Unwrapped! We’ve simplified markets and compiled a list of only the most important facts and their implications.
Commodity Winter Soon? 🤔
What do you get when you mix dwindling production, excessive government spending, and low-interest rates? Inflation.
The world has been struggling with rising commodity prices ever since the pandemic began. Worldwide lockdowns were bound to create supply chain and manufacturing bottlenecks. But that does not mean that people were ready for it.
For better or worse, governments across the world lowered interest rates and introduced more liquidity into the market. More cash available to be spent = more people buying goods and services while investing in the markets.
Or as your Economics textbook from school would say, more demand and less supply. Commodity prices rose around the globe, at times out of the blue. For instance, lumber prices skyrocketed by 250% in the US between 2020-21.
It’s easy to forget that the rising price of commodities is known to have an impact on the day-to-day life of everyone. More money being spent on day-to-day necessities means less money to save and invest.
The rise in lumber prices, for example, meant that an average single-family home cost an extra $24,000 Naturally, investors may choose to liquidate their assets.
The situation became even more severe since international conflict entered the fray in early 2022. The countries involved in the conflict are major oil suppliers to the developed and developing world.
The Game of Sanctions eventually drove up the price of Crude Oil. Metals like Aluminium, Copper, and Zinc surged to record highs not so long ago while Cotton, Gold, and even Wheat prices skyrocketed. But something’s changing.
Commodity prices are retreating from their highs. The Bloomberg Commodity Spot Index has lost more than 20% since hitting record highs in June. This drop is important because the index tracks 20+ crop, energy, and metal futures.
Furthermore, Cotton Futures, Copper Futures, Crude Oil Futures, and more are down by 10-20% since their June highs.
The general consensus is that the fear of recession has crept into the commodity market, after ravaging the stock market over the past two quarters. If you’re thinking this is bad news, think again.
Receding commodity prices are generally considered to be a positive sign when it comes to combat inflationary pressures. For example, a drop in Crude Oil prices is broadly positive for India, the world’s third-largest importer of the commodity.
Not to forget, we’re approaching a stronger US Dollar, which generally spells bad news for the commodity market.
Some experts suggest this is an overreaction while others believe that it’s too soon the gauge where the commodity market is heading.
Indian Stocks Recovering 🚀
There are no two ways about it – 2022 as a whole has been a worrying period for the Indian stock market. Inflation, war, falling Rupee, and many other factors have put a damper on Sensex and Nifty.
But all is not bad.
If you take a broader look at the stock market, you’ll notice that Sensex and Nifty are higher than where they were a year ago.
This week, in particular, has been largely positive for India’s biggest indices. Sensex has gained more than 3% while Nifty grew by 2% over the past 5 days. The reason? There are many.
For starters, the fear of recession is slowing down. US President Joe Biden may slash or even remove tariffs on Chinese goods that were imposed during President Trump’s era.
Commodity prices, which were surging to all-time highs as recently as June, have corrected by 10-20%. You’ve already seen why this is important in the Commodities section.
Furthermore, RBI is taking measures to stabilize the Rupee and make the Indian market more attractive to FIIs.
In fact, the pace at which FIIs are exiting the Indian market has slowed down. As of Thursday, the net outflows stood at $373.31 million compared to $556.13 million at the same time last week.
It remains to be seen whether the market can sustain this 3-week recovery run, especially with earnings season soon approaching.
Speaking of earnings season, we’ve compiled a list of tentative dates on which some of India’s biggest companies may announce their quarterly earnings.
|Tata Consultancy Services||TCS||8th July 2022|
|Avenue Supermarts||DMART||9th July 2022|
|HDFC Bank||HDFCBANK||16th July 2022|
|HUL||HINDUNILVR||19th July 2022|
|Wipro||WIPRO||20th July 2022|
|ICICI Bank||ICICIBANK||23rd July 2022|
|Infosys||INFY||24th July 2022|
|Axis bank||AXISBANK||25th July 2022|
|HDFC||HDFC||29th July 2022|
Rupee Under Pressure
If the question is, “how to make the Rupee stronger?”, then the answer may well be “Mehmaan nawazi”.
The RBI recently announced measures to combat a depreciating Rupee, one of which is to liberalize norms for foreign investments in government bonds.
India’s Central Bank has also raised the overseas borrowing limit for companies. The aim behind this is to boost India’s forex reserves and create a buffer against unfavorable events.
That’s not all. The RBI has removed the cap on interest rates that banks and lenders can offer on deposits by NRIs. This is likely to come into effect in October.
The Rupee ended the week at 79.25 against the US Dollar, down by close to 12 paise.
Meme of the Week
Around the World in 80 Seconds
The US Federal Government may be “less hawkish” than expected. A 50 BPS hike instead of 75 BPS may be on the cards based on the inflation data for next week. US stocks closed higher on Thursday based on this and other factors like falling commodity prices.
- Dow Jones: 31,338.15 (1.95%)
- S&P 500: 3,899.38 (3.13%)
- Nasdaq 100: 12,125.69 (5.69%)
- U.S. Dollar Index (DXY): 106.90 (1.67%)
Former Japanese Prime Minister Shinzo Abe lost his life after being shot on Friday. The Japanese Yen gained as much as 0.5% after the news broke out, as the former prime minister was known to be a supporter of economic policies that weighed down the Yen.
- Nikkei 225: 26,517.19 (1.65%)
As per news reports, the Chinese government is planning to raise $220 billion through the sale of special bonds. The goal? To speed up infrastructure funding. Indian metal stocks gained after the news was published by Bloomberg.
- SSE Composite Index: 3,356.08 (-0.76%)
Your Weekend Entertainment
- Read: Does News (or Noise) Influence Your Investing Decision?
- Watch: Dhan Offline Meetup – Ahmedabad
- Discuss: Two-Factor Authentication (2FA)
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.