The referendum vote conducted on 23-June-2016 by the British signaled a divorce from the EU. This long standing union is now on a verge of new rules, uncertainty and financial hiccups.
European stock market has ended lower for the session of the week amidst the uncertainty in risk appetite for stocks given the talks of UK leaving the EU. Germany's DAX 30 index closed 1.7% lower while UK's FTSE 100 index was lower at 0.98% at Tuesday close.
German factory orders show no growth month on month basis after a slum of 1.9% before. Year on year de-growth is 0.2% compared to an expectation of 0.9% growth. Linkages between the individual sectors of the economy would be a tedious work to estimate the exact impact that Brexit would bring to the economies as a whole. Investors shy away from equities market and are following more safe heavens like gold.
Oil prices are stabilizing in the negative territory as the broad risk-off move is continuing in the financial markets keeping the focus on the supply side of the story. Fear of lower growth in global economy and less demand of the commodity is pushing the prices further low. Libya and Nigeria are increasing their production in oil. Increase in supply from Iran and gulf countries are also seen lately. Thus volatility in prices would continue till the end of 2016 at-least.
US benchmark borrowing cost, yield on US treasury fell 9 basis point to 1.37%. The move came after soft data was reported from China corner. The Chinees service sector grew to a 11 month high in June-2016 but the composite measure of activity including manufacturing fell to 4 month low. The Chinees central bank had fixed the Yuan/Dollar reference rate to a 5.5 yr low, keeping a worry that it is artificially trying to revamp growth in the economy.
The global financial markets have started to face the music of globalization. Italian banking sector had hit a slump of 60% this year. The Indian market is also in the uncertainty phase. For India is Brexit plus Rexit (Dr. Raghuram Rajan exit the RBI).
The British exit is going to have a hit on the GDP growth in India too but marginally. India's exports accounts for 0.4% to UK and about 1.7% to EU in GDP numbers. Factors like subdued global and weak rural income would impact the growth strata. Credit supply dampening due to NPA issues in banking sectors are key hindrances as of now. Imposition of minimum import price for steel would be a positive side but again the expensive telecom auction 2016 would leverage up the sector which is still under recovery from the last auction outcome.
Continued high corporate leverage, low domestic growth, can hold back investments for a couple of quarters. Poor asset quality and weak capitalization would refrain the public sector bank's lending capacity. The FCNR maturity in Sept-2016 is another big event for India. RBI said that it is fully prepared to contain the market volatility and liquidity when the FCNR starts maturing from Sept-2016.
Banks had raised about $34 billion during Sept-2013 to Nov-2013 out of which $27 billion was through FCNR (B) deposits maturing in 3 years. The banks then swapped these dollars with RBI. The central bank thereafter readied itself by buying forward dollar.
"The investment climate is weak and uncertain. Only fundamentally strong could see the storm pass-by unharmed "
European stock market has ended lower for the session of the week amidst the uncertainty in risk appetite for stocks given the talks of UK leaving the EU. Germany's DAX 30 index closed 1.7% lower while UK's FTSE 100 index was lower at 0.98% at Tuesday close.
German factory orders show no growth month on month basis after a slum of 1.9% before. Year on year de-growth is 0.2% compared to an expectation of 0.9% growth. Linkages between the individual sectors of the economy would be a tedious work to estimate the exact impact that Brexit would bring to the economies as a whole. Investors shy away from equities market and are following more safe heavens like gold.
Oil prices are stabilizing in the negative territory as the broad risk-off move is continuing in the financial markets keeping the focus on the supply side of the story. Fear of lower growth in global economy and less demand of the commodity is pushing the prices further low. Libya and Nigeria are increasing their production in oil. Increase in supply from Iran and gulf countries are also seen lately. Thus volatility in prices would continue till the end of 2016 at-least.
US benchmark borrowing cost, yield on US treasury fell 9 basis point to 1.37%. The move came after soft data was reported from China corner. The Chinees service sector grew to a 11 month high in June-2016 but the composite measure of activity including manufacturing fell to 4 month low. The Chinees central bank had fixed the Yuan/Dollar reference rate to a 5.5 yr low, keeping a worry that it is artificially trying to revamp growth in the economy.
The global financial markets have started to face the music of globalization. Italian banking sector had hit a slump of 60% this year. The Indian market is also in the uncertainty phase. For India is Brexit plus Rexit (Dr. Raghuram Rajan exit the RBI).
The British exit is going to have a hit on the GDP growth in India too but marginally. India's exports accounts for 0.4% to UK and about 1.7% to EU in GDP numbers. Factors like subdued global and weak rural income would impact the growth strata. Credit supply dampening due to NPA issues in banking sectors are key hindrances as of now. Imposition of minimum import price for steel would be a positive side but again the expensive telecom auction 2016 would leverage up the sector which is still under recovery from the last auction outcome.
Continued high corporate leverage, low domestic growth, can hold back investments for a couple of quarters. Poor asset quality and weak capitalization would refrain the public sector bank's lending capacity. The FCNR maturity in Sept-2016 is another big event for India. RBI said that it is fully prepared to contain the market volatility and liquidity when the FCNR starts maturing from Sept-2016.
Banks had raised about $34 billion during Sept-2013 to Nov-2013 out of which $27 billion was through FCNR (B) deposits maturing in 3 years. The banks then swapped these dollars with RBI. The central bank thereafter readied itself by buying forward dollar.
"The investment climate is weak and uncertain. Only fundamentally strong could see the storm pass-by unharmed "
