Why crippled rupee may not head to 70, after all

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The beleaguered rupee (Exchange: INR=), which has pared back losses after breaching the 65 mark against the US dollar last week, will head back to 60 in the coming months, according to Crisil, the Indian arm of global ratings agency SandP.

Crisil expects the currency to recover to this level by the end of fiscal year ending March 2014, helped by further narrowing of the current account deficit due to a decline in non-oil imports, including gold, the agency said in a recent note.

The rupee has been heavily hit amid growing concerns around the Federal Reserve scaling back its monetary stimulus, falling over 15 percent against the U.S. dollar in the past three months. Rapid depreciation in the currency prompted some strategists to forecast that it would fall as low as 70.

Crisil forecasts the country`s current account deficit will narrow to 3.9 percent of gross domestic product in the current fiscal year – lower than an earlier estimate of 4.2 percent – compared with 4.8 percent last year.

(Read more: Calls get louder for India to free up currency )

“Our revised forecast of current account deficit is mainly due to the expectation of a sharper slowdown in non-oil import growth, led by a nearly 28-30 percent fall in gold imports. We also expect capital and consumption goods imports to continue to moderate due to weak domestic demand,” Crisil wrote.

Barclays, which expects the rupee to strengthen to 61 in the next six to 12 months, also believes the current account will surprise favorably this year, falling to 3.7 percent of GDP, or $68.2 billion, but noted it could fall to $57 billion “under an optimistic scenario.”

“Given the present fragile market sentiment, the underlying improvements in India`s current account may go unnoticed,” the bank wrote in a recent report.

(Read more: Is the rupee `out of control`? )

Another form of support for the rupee will come from increased foreign capital inflows, Crisil said, as a result of borrowings by public sector companies abroad and improvement in non-resident Indian deposits.

Earlier this month, India announced measures to attract $11 billion in capital inflows including asking some state-run companies such as Indian Railway Finance Corp, Power Finance Corp and India Infrastructure Finance Company to sell debt abroad, and by raising money from Indians abroad, among other initiatives.

(Read more: Are the stars not aligned for the rupee? )

“The third quarter of this fiscal [year] could see high volatility in the rupee if the U.S. Fed begins to taper out its quantitative easing program as scheduled. But the rupee could start seeing some recovery around the same time if the current account starts correcting and capital inflows begin to rise as a result of borrowings by public sector companies abroad and improvement in non-resident Indian deposits,” it said.

-By CNBC`s Ansuya Harjani; Follow her on Twitter @Ansuya_H

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Data could cast bigger shadow on emerging markets

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Economic growth data from India and the Philippines, as well as trade data from Thailand, are expected to be in focus this week as investors assess the outlook for Asia`s battered emerging markets.

Emerging markets in general have taken a beating in recent weeks amid expectations of an unwinding of US monetary stimulus and analysts say there is growing focus on economic data as investors try to assess which markets to move back into and which to stay away from.

(Read more: Emerging markets: Dissecting the good from the bad )

“The direction in emerging markets currencies is clear,” said Khoon Goh, senior currency strategist at ANZ bank told CNBC Asia`s “ Squawk Box .” “We did see a pause on Friday, but the Fed is still poised to unwind stimulus so the pressure on emerging markets will remain.”

India releases gross domestic product (GDP) data for the April-to-June quarter on Friday, while second-quarter GDP data from the Philippines are out on Thursday and Thailand releases its customs-based trade numbers later on Monday.

India`s economy grew 4.8 percent in the January-March quarter from a year earlier and economists say it probably slowed in the second quarter.

“Q2 GDP for India is poised for a further deceleration, deeper into sub-par regions. This risks intensifying the rupee, stocks and bond market sell-off,” Vishnu Varathan, market economist at Mizuho Corporate Bank said in a note.

“To a lesser extent, the slowdown in Philippines` Q2 GDP will cast a pall on emerging Asia prospects, consequently weighing on Asia asset markets,” he added.

The U.S. also releases its second reading of second-quarter GDP this week and the number is expected to be in focus amid speculation over whether the Federal Reserve could start to scale back its asset-purchase program from September.

(Read more: Time to start worry about September – yikes! )

An advanced reading of second-quarter GDP released at the end of July put U.S. economic growth at a 1.7 percent annual pace.

Focus could turn to China towards the end of the week, with the official purchasing managers` index (PMI) on the manufacturing due out at the weekend.

The flash HSBC (London Stock Exchange: HSBA-GB) PMI released last week hit a four-month high of 50.1 in August, raising hopes that a slowdown in the world`s second biggest economy may be showing signs of stabilization.

(Read more: China s `stallion` amid emerging market turmoil )

Japan meanwhile releases a raft of data on Friday, including latest inflation and household spending data which could provide the latest insight into the outlook for Japan`s economy.

Economists polled by Reuters (Toronto Stock Exchange: TRI-CA) forecast Japan`s core consumer price index (CPI) rose 0.6 percent in July from a year earlier, compared with a 0.4 percent rise a month earlier. Household spending is expected rise 0.3 percent in July from a year earlier, versus a 0.4 percent fall in June.

“In Japan, key consumer spending, labor market and industrial production data to be released Friday will be watched closely for signs Abenomics is working after a recent run of mixed data,” Shane Oliver, chief economist and head of investment strategy at AMP (OTCQB: AMPD) Capital in Sydney, said in a note.

“Inflation data is expected to show ongoing evidence that deflation is fading,” he said.

– By CNBC.Com`s Dhara Ranasinghe; follow her on Twitter @DharaCNBC

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Gold’s rebound: Why it is believable this time

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

As investors shun risk assets such as emerging market equities and currencies, gold is quietly gaining traction, clawing its way back up to the USD 1,400 level.

The strength of bullion amid growing expectations for the US central bank to scale back its bond buying program in September is a sign that a solid base may have formed in the yellow metal, say strategists.

“If tapering does occur in September, it will be more `buy the rumor, sell the fact.` Certainly the entire market is expecting it already. We`ll see gold prices continue to rise quite strongly over the next couple of months,” said Andrew Su, CEO of Compass Global Markets.

“The reaction to (Fed) minutes was lackluster, under most circumstances you would have gold prices to fall a lot more, and they haven`t. That reflects the strong buying and heavy interest in gold particularly out of Asia,” Su, who expects gold to cross USD 1,400 over the next week, added. Gold has risen 11.5 percent since July, erasing some of the hefty losses seen in the first six months of the year.

According to the Federal Reserve`s July minutes, officials thought it would soon be time to slow the pace of the bond buying “somewhat,” but some counseled patience.

Kelly Teoh, market strategist at IG Markets who believes the upside in gold has legs, said investors are moving into the precious metal because Asian currencies are under tremendous pressure.

“If you look at all the various asset classes, the US equities are at all-time highs, Asian ex-Japan equities are lagging, commodities is the only asset class that`s underperformed so I see value in that,” she added.
Barclays` chief technical strategist Dhiren Sarin says gold has either already formed, or is in the process, of establishing a “very strong base.”

“We are bullish in the medium to long term. Short term, we potentially see a pullback as the US dollar is catching a strong bid, which could undermine gold in the near term,” he said.

Sarin recommends buying gold on pullbacks, noting that September is seasonally the most bullish period for gold. Looking at the yellow metal`s performance since the 1960s, median returns for gold are approximately 2 percent during the month, far outpacing any other month of the year, he said.

“In the coming years though, we believe gold has stronger upside potential towards the average levels of 2012, near USD 1,700, though this will likely evolve next year,” he said.

David McAlvany, CEO, McAlvany Financial Group agrees the longer-term prospects for gold are bullish, pointing to possible supply constraints over the coming months.

“We`re already dealing with projects that are being scuttled in Africa – because you`re dealing with a cost of production which is USD 200-300 above the current price,” he said.

“You would have to move to 2014 for that to have a real positive supply-demand benefit in terms of the price, but you may see that by the mid-year (2014),” he added.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Goldman downgrades emerging Asia currencies

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

US investment bank Goldman Sachs expects the rout in Asian emerging market currencies to continue, downgrading its forecasts for battered currencies in the region.

Goldman revised down its three, six and 12-month targets for the Malaysian ringgit, Thai Baht and Indonesian rupiah on Friday.

The currencies, together with their emerging-market peers, have taken a beating recently amid expectations for an unwinding of US monetary stimulus.

The rupiah should take the biggest hit as investors flee the volatile group of currencies for the safety of developed markets, according to Goldman.

It expects the rupiah to weaken to 11,800 per dollar in the next year, compared with a previous target of 10,500. That implies a fall of 9 percent from current levels of 10,830.

The rupiah hit its lowest level in more than four years on Friday, racking up losses of 12 percent in the year-to-date.

“In particular, downside pressure on the rupiah could persist in the near term if we see elevated inflation prints over the next few months, and given the prospect of Fed tapering,” Goldman said in a note.

Annual inflation in Indonesia, Southeast Asia` biggest economy, surged to 8.61 percent in July — its fastest pace in four-and-a-half years.

Indonesia`s central bank has responded by lifting interest rates by 75 basis points (bps) this year to 6.5 percent, becoming the first Asian central bank to do so since June 2011.

But the monetary tightening appears to have done little to stem the rupiah`s fall.

Goldman expects Bank Indonesia to hike interest rates in September in an attempt to prevent further declines in the currency, but says that may not be enough.

“A bigger rate hike would go further towards stabilizing the currency, but we think policymakers will continue to be restrained by the desire to prevent growth from slowing too sharply, especially since the country is approaching an election cycle,” Goldman said. Parliamentary elections are set to take place in April next year with presidential elections due in June.

Going down

Goldman expects the Malaysian ringgit to weaken to 3.4 per dollar in the next three months, implying a fall of about 3 percent from current levels and compared with a previous forecast of 3.2 percent.

Its new 12-month forecast for the Thai baht is 32 per dollar, a 4 percent downward revision from the previous forecast.

The ringgit fell to 3.31 per dollar on Thursday, its weakest level in more than three years. The Thai baht, trading at about 31.89 to the dollar, is down about 4 percent so far this year.

Emerging Asian countries` weak current account balances will continue to weigh on their currencies as fears of the Federal Reserve unwinding its monetary stimulus highlights liquidity concerns in these markets, Goldman said.

“The market sell-off has its roots in deteriorating underlying fundamental flows, and in particular the weakening broad balance of payments led by current account deterioration in recent quarters,” Goldman said.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China a ‘stallion’ amid emerging market turmoil

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

China stands out like a “stallion” amid the turmoil in emerging markets, according to one strategist, as a slowdown in the world`s second largest economy shows increasing signs of stabilization.

“China has been a stallion – in the 1997-1998 Asian financial crisis it played a very stabilizing role, 2008-2009 [global financial crisis], same thing. It is playing a similar role now,” Stephen Schwartz, Asia chief economist at Spanish banking group BBVA, told CNBC on Thursday.

“The situation would be much more severe if we had China continuing to slow on top of the QE [quantitative easing] tapering,” he added.

(Read more: One currency that`s dodged the emerging market rout )

Schwartz pointed to the resilience in recent weeks of the yuan, which has held up in the face of rising concerns about the Federal Reserve unwinding its monetary stimulus. In contrast, emerging market peers such as the Indian rupee and Indonesian rupiah have fallen sharply.

Latest economic indicators, including the HSBC flash manufacturing purchasers mangers index (PMI) for August, are fueling optimism that China should achieve a soft landing for its economy which has slowed in the past two quarters.The PMI, published on Thursday, rose to a four-month high of 50.1 from 47.7 in July, driven by domestic demand and a sharp rise in new orders.

“[The data] confirms that the economy has stabilized in the short term and downside risks for the second-half have declined. Based on this flash PMI, we now see upside risks to our GDP forecast [of 7.4 percent] for the third quarter,” said Zhiwei Zhang, chief China economist at Nomura.

In a sign of improving sentiment, China`s benchmark Shanghai Composite  rose 0.1 percent following the PMI data, bucking the downtrend seen across Asia.

(Read more: China`s good economic news keeps getting better )

Ting Lu, China economist at Bank of America Merill Lynch, said in a note on Thursday that he was confident in maintaining his above consensus 7.6 percent and 7.5 percent year-on-year growth forecasts for the third and fourth quarter.

Economists say that the government`s recent “fine-tuning” policies – including a mini-stimulus package of fiscal measures and efforts to stabilize interbank lending rates, which spiked in June, are beginning to bear fruit.

In late-July, Beijing unveiled measures to support growth including cutting taxes for some small and micro-sized enterprises and steps to help exporters and speed up railway investment.

(Read more: China acts to ease credit crunch-why the change of heart? )

“It`s clearly the policy support and policy clarity – I think people are convinced now that the authorities mean business with their 7.5 percent growth target for this year,” said BBVA`s Schwartz.

-By CNBC`s Ansuya Harjani; Follow her on Twitter @Ansuya_H

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Messaging apps hit gold as ’emojis’ head west

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Stickers used in messaging applications are delivering healthy revenues for Asian technology firms, and as the craze starts to sweep the Western world, more companies are looking for a slice of the cash.

The stickers, otherwise known as emojis are more advanced siblings of emoticons and have been a firm part of Japanese tech culture for the last ten years. After spreading first to the rest of Asia, they are now reaching the Western world, boosted by Apple’s inclusion of them in its iOS5 software.

Stickers can be anything from simple smileys to dancing pandas, and can express a range of emotions. Their global acceptance was underlined last week with the release of pop star Katy Perry’s latest music video, which heavily featured the colorful images.But behind the cuteness lies cash. Japanese company Line, credited as one of the first companies to monetize the trend, announced core revenue of 9.77 billion yen (USD 100 million) in its second quarter. Sticker purchases made up 27 percent (USD 27 million) of revenue, and the company hopes to have 300 million subscribers by the end of the year.

In a press conference on Tuesday, Line revealed there have been over 7 billion messages and 1 billion stickers sent as of August 2013, according to industry blog SD Japan.
Korean rival, Kakao Talk, is having a similar boom. Its mobile games service generated 348 billion Won (USD 311 million) in revenue during the first half of 2013.

“You can see how many tens of millions they are doing every quarter, it’s very profitable,” Riku Salminen, CEO of Jongla, a Finnish messaging app provider, told CNBC.

Jongla launched its first messaging app last year, after the company was established in 2009. Salminen has instituted the “Jongla Way” at the firm, using local content from local illustrators around the globe, who create graphics suited to separate cultures.

The firm’s instant messaging app is free to download, and 50 percent of the stickers are free. But the 50 percent that aren’t free drive nearly all of the company’s revenues, despite selling for less than two dollars per pack.

Fledgling US startup Messageme has also jumped on the bandwagon, as too has Facebook, which has started offering an array of free emojis and has integrated a “sticker store”.

Tessa Mansfield, senior vice president at research firm Stylus, said that from a marketing perspective, the stickers were best used in promotions and merchandising, linked in with a new movie release or pop song.

“The rise of stickers and emoticons is absolutely rooted in the ubiquity of the modern smartphone, and the emergence of a tech-literate generation of teenagers,” she told CNBC.

“This fun, quirky communication method has developed as a kind of ‘digital slang’ for young teens, delivering the rapid, image-led messaging mirrored in apps such as Snapchat.

It also appeals to the desire to collect and accumulate – allowing teens to curate individual collections of special edition and celebrity-led stickers to personalize their digital conversations.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Is rupee ‘out of control’?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

As the battered down rupee slumped to yet another lifetime low of 64.54 to the dollar on Wednesday, analysts say the selling is getting out of hand and the currency could fall to 70 in the coming months.

Foreign investors have yanked money out of India in recent months amid fears over the winding down of US monetary stimulus and deteriorating economic conditions in the country.

The rupee has been one of the world’s worst performing currencies this year as a result, slumping 15 percent since late May when the Fed tapering fallout first took hold.

Keagan York, head of currency strategy at Sydney’s Compass Global Markets, said the rupee was going into free fall.

“I wouldn’t touch it right now,” said York. “If you are an importer looking to buy Indian goods, I’d wait, as they are just going to get cheaper and cheaper.”

Many analysts are now calling for levels as low as 70 to the dollar over the next few months, a decline of over 9 percent from current levels.
Lasanka Perera, managing director at Global FX Partners, said the rupee is now “out of control.”

“We’ve got high inflation, continual downgrades in growth and the Reserve Bank of India (RBI) has failed to create stability and confidence around that currency. As long as there is no change I think 70 (to the dollar) is well within reach,” he said.

India has been gripped by a mood of crisis in recent weeks, despite Prime Minister Manmohan Singh’s reassurances on Saturday that India was not headed for a 1991-style balance of payments crisis.

A key part of the problem seems to be that investors have lost confidence in India’s central bank, after it made a number of confusing moves dubbed by many as policy “flip-flops.”

Late on Tuesday, the RBI announced plans to inject 80 billion rupees (USD 1.3 billion) into the country’s banking system by buying long term government bonds amongst other steps, which industry watchers say contradicts its recent tightening moves including the imposition of capital controls last week to prop up the rupee.

“The RBI policy moves are sending mixed signals. They cannot control both yields and FX. They are trying to control too much and are losing credibility,” said Nizim Idris, head of strategy, fixed income and strategies at Macquarie Bank, who has revised his forecast for dollar-rupee to 70 by year-end, versus a previous forecast of 64-65.

Idris said the RBI’s latest move to buy bonds in a bid to reduce government debt yields, which have hit 9.48 percent, could have a reverse effect.

“To attract capital back into India, investors need to see value and value should come from wider real bond rates through higher yields. By buying bonds they are actually reducing the bond market’s value, and subsidizing foreigners who are exiting the market,” he noted.

Compass’ York said he did not see the rupee moving quite as low as 70 to the dollar, but is sticking to his forecast of 68 by the end of the year. He said a silver lining is that the weaker rupee should provide a boost to Indian exporters.

“I expect it (the rupee) will see a bit of resistance at that level (68 to the dollar) as India should see a pick-up in manufacturing,” he said.

Related Links

• 
  
  
  

  For Indians abroad, rupee’s plunge is great news
  
  
• 
  
  
  

  Distant bright spot for battered rupee?
  
  
• 
  
  
  

  What India’s swoon means for investors
  
  
• 
  
  
  

  Indian rupee hits record low; capital control fears grow

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Are emerging markets facing an abyss?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The prognosis for emerging markets is not looking good after four straight days of heavy selling in stocks and sharp currency falls that have prompted Turkey and India to step in with supportive steps.

While the volatility, driven by concerns about an unwinding of US monetary stimulus, may not be over yet, nor is it time to hit the emerging-markets panic-button, strategists say.

Indeed, markets were slightly calmer on Wednesday with the MSCI emerging markets index down just 0.1 percent and off six-week lows hit the previous day.

The Indian rupee was at 63.31 per dollar, about 1.25 percent above Tuesday`s record low, while the Indonesian rupiah pulled back a touch from a four-year trough against the dollar and the Brazilian real held above more than four-year lows hit on Monday.

“Emerging market currencies will sell off further, especially ones that have compromised balance of payments,” said Stuart Oakley, managing director for Asian currency trading at Nomura.

“But don`t expect these currencies to fall into an abyss, simply because there`s still so much money and assets under management among some of the big to medium-sized long-term pension funds, and their allocation to emerging markets is still quite small.”

According to money manager BlackRock , emerging markets account for roughly 51 percent of the world`s gross domestic product (GDP), but market capitalization represented by emerging markets is just over 10 percent, suggesting the fall-out from the market rout could be limited.

“I don`t think the sell-off has become disorderly in the way that it was during [the] 1997-1998 [Asian financial crisis],” Nizam Idris, head of fixed income and currency strategy at Macquarie Bank in Singapore told CNBC Asia`s “ Squawk Box ” on Wednesday.

“I think liquidity is still there. The price action is for a higher dollar (New York Board of Trade (Futures): =USD) versus emerging market currencies, but we are still not in crisis mode or panic mode,” he added.

Emerging markets, which benefited from massive US monetary stimulus in the wake of the global financial crisis, have come under heavy selling pressure since May as investors started to anticipate a scaling back of the Federal Reserve`s asset purchase program.

Countries which run big current account deficits such as India and Indonesia in particular have borne the brunt of the selling. India`s stock market, for instance, is down about 10 percent since May.

Still, strategists say there is growing attention on the opportunities to be made from knocked-down emerging market assets.

“We need to get a grip a little bit,” Bill Maldonado, HSBC global asset management CIO for Asia-Pacific, said on CNBC, talking about the rout in emerging markets.

“The volatility is gut-wrenching at times and it`s very difficult to stomach that, so naturally there is some caution. But there`s very much an anticipation of saying, there`s some fantastic opportunities here, too,” he added.

– By CNBC.com`s Dhara Ranasinghe; follow her on Twitter @DharaCNBC

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fed’s hawkish message a lever for rates

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

With the Fed on a path to taper, rising bond yields could act as a razor’s edge against the stock market, cutting into gains with every tick higher.

The minutes of the last Fed meeting show that the Fed on Aug 1 was getting set to reduce, or taper, its bond buying by the end of the year, but with no clear signal of when it might move.

The minutes, released at 2 pm ET Wednesday, triggered immediate selling in both bonds and stocks. The Dow swung to a triple digit loss, which it then totally reversed in a short-covering charged rally, before tumbling again to end with a 105 point loss at 14,897.

The volatility is expected to continue.

“I thought to be honest, (the minutes) were somewhat of a non-event,” said Peter Boockvar, chief market analyst with the Lindsey Group. “I think while they didn’t specifically mention anything about September, by not pulling back from the possibility of September, people are concluding it is September. But going through this I don’t see anything new.”

The Fed has made it clear its pull back from the USD 85 billion in bond purchases would be dependent on the economy.

“It’s a done deal. They’re going to taper, unless things go south,” said Barry Knapp, head of equity portfolio strategy at Barclays. “This leaned more hawkish.”

Knapp said one hawkish note in the minutes was that the Fed committee members rejected the idea of lowering the 6.5 percent unemployment rate threshold it set for raising the Fed funds rate. Even though the Fed did not move up expectations for a short-term rate hike before 2015, Fed funds futures, in afternoon trading, reflected a higher market expectation of a rate hike in late 2014, he said.

Treasury yields meanwhile edged higher into the late afternoon with the 10-year at 2.89 percent, and by early evening, it was testing the 2.9 percent high it put in earlier in the week. Yields rose along the curve, with the 5-year yield moving rapidly higher to 1.64 percent. The belly of the curve is important for rates tied to business loans.

Coming up: Jobless claims

Markets now turn their attention to economic data, particularly weekly jobless claims, released at 8:30 a.m. Thursday. The claims data will be especially important since it is from the same week that the survey is taken for the government’s August employment report, to be released Sept. 6.

“If they stay in the 320,000 area, that really implies a stronger jobs number for this month,” said Knapp. Claims are an important indicator for employment, a key metric in the Fed’s calculus for easing.

“I think claims are a big deal. They really moved the market in the last few weeks,” Knapp said. The jobless claims last week fell to 320,000, the lowest level in six years, and triggered a move higher in bond yields, which in turn helped drive a stock market selloff.

Other data Thursday includes manufacturing PMI at 8:58 p.m., FHFA home prices at 9 a.m. and leading indicators at 10 am. There is also PMI data expected for China and the euro zone.

The Fed minutes did strike one dovish note when they mentioned that a number of participants were somewhat less confident than they were in June about economic growth picking up in the near-term.

RBS senior Treasury strategist John Briggs said the market expected to hear an overall dovish message. “On the market, I think we probably came in on balance…with most people thinking given the rate rise, the tone of this thing was going to be dovish. I’m not saying they’re hawkish . I just don’t think they’re saying anything new,” he said.

“The minutes basically say ‘remember what Bernanke said at the July press conference – that’s still our message.’ The tapering time line is the same,” he said. The Fed has said it expected to begin tapering before the end of the year.

The minutes also landed a day ahead of the annual Fed symposium in Jackson Hole, Wyo. Fed Chairman Ben Bernanke breaks with tradition this year and will not attend, but the symposium, starting Thursday evening, will certainly be filled with speculation about who will replace him in January.

“Jackson Hole could be interesting,” said Knapp. “I think Jackson Hole is going to be a vigorous debate about the efficacy of asset purchases and the Fed will generally defend the impact on the US  economy,but there could be some very interesting work on the impact of emerging economies and foreign markets.”

Emerging markets have come under serious pressure, as US  rates rise and the Fed looks set to pull back from easing.

Briggs said he expects Treasury yields to continue to move higher and the bond market is trading anxiously. “I just think the market’s vulnerable. It trades like it’s vulnerable. We had emerging market woes, and it caused a one-day pop in the market. Now you’ve got stocks off late, causing no bounce. It tells you the market is long and vulnerable. I fear that the technical hedging that might need to occur if we continue to head north, especially if we go above 3 percent,” he said, adding the 30-year is also aiming at the key 4 percent level.

“If we go above 3 percent, I think at that point, it might be an eye opener for the equity market. I think that would have a psychological impact on risk assets,” he said. The selloff in stocks actually may curb some of the move higher in rates, he added.

Knapp said he expects rising rates to pressure stocks, and he expects the market to fall until the Fed starts tapering, which he expects in September. “The market’s going down between now and then,” he said. “By the beginning of October, we should likely be below 1600 (on the S&P).” The Fed meets Sept. 17 and 18.

Earnings before the bell are expected from Sears, Dollar Tree, Game Stop,Abercrombie and Fitch, and The Buckle. Gap, Marvell, Ross Stores, Pandora, andAeropostale report after the bell.

Related Links:

• 
  
  
  

  Gang of hawks rises inside the Fed
  
  
• 
  
  
  

  Cashin: Market’s ‘wild ride’ after Fed minutes
  
  
• 
  
  
  

  Correction could top 5 percent: Wien
  
  
• 
  
  
  

  US Treasury yields spike on Fed minutes

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Is India moving closer to a ratings downgrade?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The plunging rupee has intensified concerns over India’s dreary economy and raised the question whether Asia’s third largest sovereign credit rating may be downgraded to “junk” status in the coming months.

Ratings agency Standard and Poor’s (S&P), which cut its outlook on the country’s BBB- rating to negative last year, told CNBC it continues to see a one-in-three chance of a downgrade in the next 1-2 years.

However, if weak sentiment causes business financing conditions and investment growth to deteriorate further – putting the country’s longer-term growth prospects at risk – the likelihood of a downgrade will increase, S&P said.

“India’s long term growth prospects could weaken on a sustained basis, with negative implications for the sovereign credit fundamentals,” Kim Eng Tan, senior director, Asia-Pacific Sovereign Ratings, S&P told CNBC this week.

A downgrade to junk status would result in higher overseas borrowing costs for Indian corporates and hurt the country’s ability to attract foreign investment.

“It is, however, too early now to tell if this scenario will come to pass. This will be largely dependent on policymakers’ reactions to these latest developments,” Tan said.

India’s economy has experienced a deepening slowdown over the recent quarters, expanding just 4.8 percent in the January-March period. Growth is expected to remain under pressure in the coming months given tighter liquidity conditions and weakening capital investment and consumption.

On top of a deceleration in growth, the economy faces a rapidly decelerating currency, which hit a record low of 64.13 against the U.S. dollar on Tuesday. The falling rupee is negative for India’s economy because it stokes inflation and raises the country’s import bill, putting further pressure on the current account position deficit.

So far, the government’s response to bolster the weakening rupee through tightening liquidity and restricting capital outflows have failed to instill confidence in investors, who view the measures as a mere short-term fix.

“We view the capital outflows and depreciating rupee as an indication of weakening investor confidence in India. Measures introduced by the government to restrict capital outflows have also increased uncertainties among investors both foreign and domestic,” said Tan.

More from CNBC

Distant bright spot for India’s battered rupee?
What’s really holding back growth in India
Why this unloved market is due for a bounce

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow