This is a roundup of the day’s top stories in brief.
1. Trade War Bruises Global Equity Markets
Stocks slumped, the dollar gained and commodities slid as markets across Asia, Europe and the U.S. reeled from fresh salvos in the escalating trade war between the U.S. and China.
The S&P 500 Index ended the longest rally in a month after the Trump administration said it will slap tariffs on an additional $200 billion of Chinese products. The Asian nation vowed to retaliate, helping to drive down shares in Europe and Asia. Metals bore the brunt of the reaction in commodities – copper, nickel and zinc all tumbled.
- The S&P 500 Index sank 0.5 percent as of 9:57 a.m. New York time.
- The Stoxx Europe 600 Index fell 1.3 percent, the biggest tumble in more than two weeks.
- The Topix Index declined 0.8 percent to 1,701.88.
- Hong Kong’s Hang Seng Index fell 1.1 percent, the largest fall in more than a week.
2. Sensex, Nifty Lose Momentum Amid Rising Trade War Fears
Indian equity benchmarks’ three-day upmove slowed amid escalating trade tension between the U.S. and China.
The S&P BSE Sensex rose 0.07 percent or 26 points to 36,266 and the NSE Nifty 50 index was little changed at 10,948. For most part of the day, the Sensex and Nifty moved in a narrow range as gains in TCS and Reliance Industries were offset by losses in ICICI Bank, Maruti Suzuki and HDFC.
Fourteen out of 19 sector gauges compiled by BSE ended lower led by the S&P BSE Metal index’s 3 percent drop. On the flipside, the S&P BSE IT index was the top gainer, rising 2.4 percent.
Mid- and small-cap shares underperformed their larger peers as the S&P BSE MidCap index fell 0.7 percent and the S&P BSE SmallCap index declined 0.3 percent.
All You Need To Know About Trade Wars
3. Is The Government Facing A Cash-Flow Mismatch... Again?
Four months into the financial year, the central government appears to be facing a short-term cash flow mismatch. Apart from scheduled borrowings, the government has increased the limit on advances from the RBI and is resorting to raising short-term funds via cash management bills.
On Tuesday, the government raised Rs 20,000 crore via an auction of cash management bills with a maturity of 70-days, according to the auction result notified by the Reserve Bank of India. Since the start of this fiscal, the government has already borrowed four times using this instrument, which is typically used to tide over short-term cash flow mismatches.
- On June 4, the government raised Rs 20,000 crore via 21-day CMBs.
- Another Rs 20,000 crore was borrowed on June 11 with 70-day bills.
- A third tranche of 45-day CMBs was issued on June 25, raising Rs 25,000 crore.
- The fourth tranche of CMBs was auctioned on Tuesday, raising Rs 20,000 crore.
Soumyajit Niyogi, associate director at India Ratings, says the borrowings via short-term instruments suggests a mismatch in revenue and expenditure.
The borrowing through long-dated cash management bills sends two signals. First, that overall expenditure is running high, leading to a mismatch. Second, that they are not expecting the situation to ease immediately which is why they are borrowing for longer tenures like 70 days.Soumyajit Niyogi, Associate Director, India Ratings
4. Experts Warn Of U.S. Recession And Further Drop In Emerging Markets Stocks
Temasek Holdings Pte., the Singaporean state investor that signaled its intent to slow its investment pace, fears that slowing economic growth in the U.S. adds to mounting risks just as trade tensions are weighing on global confidence and capital spending.
A lot of the spare capacity in the U.S. economy has “disappeared”, creating the risk that the U.S. could eventually roll into a recession as the Federal Reserve keeps hiking rates, Head of Strategy Michael Buchanan said in a Bloomberg TV interview in Singapore on Tuesday. That’s coupled with escalating trade rhetoric and rising U.S. tensions with the likes of Europe and Canada, he said.
“That is a source of significant concern and is part of the reason for us to temper our pace of investments,” Buchanan said. He ruled out the potential for a crisis-type event in the U.S., saying that he expects a “normal cyclical recession”.
For Mark Mobius, there may be worse to come even after the U.S. fired new shots in its trade war with China: a further 10 percent drop in emerging-market stocks and a global financial crisis.
“There’s no question we’ll see a financial crisis sooner or later because we must remember we’re coming off from a period of cheap money,” the veteran investor in developing nations said in an interview in Singapore. “There’s going to be a real squeeze for many of these companies that depended upon cheap money to keep on going.”
The MSCI Emerging Markets Index will likely fall another 10 percent from current levels by year-end, predicted Mobius, who left Franklin Templeton Investments earlier this year to set up Mobius Capital Partners LLP. That would tip the gauge, which has fallen around 16 percent from a peak in late January, into a bear market.
5. LIC-IDBI Bank Deal May Conclude By September
After getting a go-ahead from the insurance regulator IRDAI, Life Insurance Corporation of India is preparing itself to complete the 51 percent acquisition of debt-ridden IDBI Bank by the end of September.
For now, LIC is conducting due diligence of IDBI Bank, its assets, debt position and fixed assets, sources told PTI.
Besides, the insurance behemoth LIC also intends to make an open offer to minority shareholders of IDBI Bank. As per SEBI takeover code rules, an acquirer has to make an open offer to the shareholders of the target company on acquiring shares or voting rights of 25 percent or more.
LIC’s acquisition could happen through issuance of fresh equity by IDBI Bank so that the government's stake which is presently at 80.96 percent would come down below 50 percent as announced in the Budget.
Also Read: LIC-IDBI Bank: A Stop-Gap Solution
6. Telecom Commission Approves Net Neutrality, New Telecom Policy
The Telecom Commission approved net neutrality rules which bar service providers from discriminating against internet content and services by blocking, throttling or granting them higher speed access.
Some “mission critical” applications or services like remote surgery and autonomous cars will, however, be kept out of the purview of net neutrality framework, Telecom Secretary Aruna Sundararajan told reporters.
The Telecom Regulatory Authority of India had recommended restrictions on service providers from entering into agreements which lead to discriminatory treatment of content on the internet.
The commission also approved the new telecom policy – National Digital Communications Policy 2018 – for seeking approval of the Union Cabinet, Sundararajan said.
7. GST Rate Cut For Sanitary Napkins?
The Goods and Services Tax Council may consider a reduction in tax rates on a host of items with low revenue implications as part of the tax rationalisation exercise in its next meeting on July 21.
The items which could be considered for cutting of tax rates might include sanitary napkins, handicrafts and handloom goods, besides certain services.
The Council will take up the issue of rationalisation of taxes on various commodities in view of demands raised by stakeholders, a government official said. It would focus mainly on those items which are of general consumption, and have low revenue implication, the official added.
Most handloom and handicraft products, as well as sanitary napkins are currently taxed at 12 percent, and there are demands to exempt them from the levy.
8. Government Leaves Fate Of Section 377 To Wisdom Of Supreme Court
India will not contest petitions challenging the constitutional validity of Section 377 that criminalises homosexuality and will leave it to the wisdom of the Supreme Court as long as it applies to “consensual acts of adults in private”.
If the case also involves other rights and issues of the LGBTQ community such as marriage, adoption, and inheritance, the government would like to contest on those points, Additional Solicitor General Tushar Mehta said while filing the government’s affidavit in the court. Such rights, if granted, will have consequences which are neither contemplated in the reference nor required to be answered by the Supreme Court, it said.
A five-judge constitution bench headed by Chief Justice Dipak Misra—and comprising Justices RF Nariman, AM Khanwilkar, DY Chandrachud and Indu Malhotra—is hearing petitions against the colonial era law.
9. Flying Trains Could Be Coming Your Way
It sounds like something Q, the tech guy in James Bond movies, would create: A plane that lands on a runway, shrugs its wings off, turns into a train and rolls on to rails to drop you off at your local station.
That’s what a French entrepreneur, who’s made millions by connecting engineers with industrial groups, is pitching to Boeing Co. and others. "Link & Fly" is Akka Technologies’s new flagship aircraft design, with wings that come off to hasten turnover at airports and make boarding easier and closer to passengers’ homes.
“After cars go electric and autonomous, the next big disruption will be in airplanes,” Akka’s Chief Executive Officer Maurice Ricci said in an interview in Paris. Boeing is among prime customer targets for Akka, as it seeks to limit its dependence on the likes of Airbus SE and Renault SA in Europe.
10. Should You Read Monika Halan’s “Let’s Talk Money”?
Well it wasn’t a pleasant experience for me. Nothing wrong with the book. To the contrary, it’s an excellent read – riding on the author’s characteristic candour and domain expertise that equips her to explain financial concepts and instruments in the simplest manner without talking down to her audience.
But Monika Halan’s “Let’s Talk Money” left me filled with regret. For all the time and effort I had not spent on managing my money better. Well, managing it at all.
At this point you’re thinking – right, business journalist for decades and she’s a money dummy?!? No I’m not. I just never got around to it. For reasons that when said aloud seem stupid. No time. Other priorities. Too complex.
There are millions like me, the book says. “The scale of the problem freezes us.”