The Indian market is supercharged by reckless stimulus and foreign inflows after all money from the Chinese bourses ended up inflating asset prices in India. If we see all the markets parallely, in conjunction with the economic recovery, the policy can easily be blamed. There has been no monetary reversals of emergency programs, even though stock market and the economy are both soaring at godspeed. INR is at a 3 month low, even though record levels of foreign capital is flowing inroads.
One of the hidden bombs in the banking industry is the Security Lending Business by banks and brokers. They have added millions in security based lending and none of the banks disclose this amount. Thus we have no data for calculating the total leverage in the market, and all of sudden the castle would break and the whole market is amazed by overnight bankruptcy.
So, inflation has been a major part of my blogs over the last 12 weeks, and now it seems as if we are just chasing a moving goal post. From calling it a transitory matter to adding persistently transitory narrative is making our forecast redundant in the face of slowing job growth and weakening consumer sentiment
It would be very interesting to see which sectors would sell off when the Fed really starts tapering and then starts hiking rates. I personally feel the over indebted firms with bleak future should be the first ones to nosedive.
What do we see in UST? - UST 10 Yr looks to be inching closer to the 2% mark by year end, and this couples with the rate hike regime would dance to the tunes of the FOMC rate hikes. We expect 2 hikes in 2022, and this could soon imperil the long term aggressive growth projection baked into the tech stocks. One other reason for the USTs to rise could be the emptying US Treasury, this could force them to rollover their existing debt, which the market estimates would sell at a much higher rate.
Using the Fed Fund futures, looks like the rate cuts are priced in very soon in the trajectory now. The Fed has clearly indicated that it would start rate hikes only after winding up its QE, which is around next September. This means that we can gauge the rate hike expectation by looking at the 1 year FF futures standing today. If the market is pricing in a 25bp hike then the FF future should trade at 13bp, right now, given averaging, but turns out the instrument is trading at 24bp. So, does that mean the market is expecting the Fed to double up on their plans to thwart inflation and ignore growth spillovers?
We remember the times when buyers of oil were receiving money to hold inventory. Fast forward 12 months, containers are one of the most sought after things in international trade. The energy market has further exacerbated the rough phase of the supply chain dislocations.
Meanwhile in the swap markets, we came across some of the first of their type, the RFR vs RFR cross currency swaps. This is an instrument in which both the legs are indexed to the overnight rates of respective domiciles. This would also means that the market is transitioning towards a more liquid IBOR based market across a wide array of products.
Despite the recent market volatility, market data is clearly supportive of future growth. Real interest rates in U.S. Treasury bonds across all maturities are currently negative. This may not be attractive for bond investors, but, for issuers in debt markets, these negative real Treasury rates combined with historically tight corporate bond spread flows directly to an improving bottom line.
If fiscal boosters are approved, their focus to spur productivity-enhancing projects argues for investments in digital infrastructure, including fiber optics, to support the growth of this innovative economy. A significant aim to combat climate change also supports careful consideration of renewable energy opportunities.
Interesting Charts:
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