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Yellen Rate Raises Seen as Gradual in Survey as Inflation Muted


Even after five years of steady economic growth, Federal Reserve Chair Janet Yellen is likely to raise interest rates only gradually between 2015 and 2017 as inflation remains muted, according to a Bloomberg survey of economists.

Fifty-six percent of 61 economists said the median of policy makers’ forecasts for the benchmark interest rate at the end of 2017 will be below their median estimate for the longer-run rate. Forty-one percent said the rate would be at the longer-run median. The survey was conducted Sept. 11-15.

Policy makers, who start a two-day meeting today, are considering how much progress toward their goals of full employment and stable inflation would be needed to prompt the first rate increase since 2006. They will outline their outlook for the economy in quarterly projections for growth, unemployment (USURTOT), inflation and the benchmark federal funds rate.

“There is certainly a majority” on the Federal Open Market Committee, including Yellen, “who still see slack in the labor force and no evidence of inflation, and would like to err on the side of lower interest rates for longer,” said Scott Clemons, chief investment strategist for the private banking unit at Brown Brothers Harriman & Co. in New York.

Broader Measures

Unemployment fell to 6.1 percent in August from 7.2 percent a year earlier, in part because people have dropped out of the labor force. Yellen has focused on broader measures of job-market health, such as the share of the jobless who have been out of work for 27 weeks or longer, which stands at 31 percent, compared with an average of 19 percent from 2004 to 2007.

The FOMC said in July that “a range of labor-market indicators suggests that there remains significant underutilization of labor resources.”

The Bloomberg survey also showed that 57 percent of economists expect the median estimate for the federal funds rate at the end of 2015 to remain near the June forecast of 1.13 percent. Thirty-four percent said it would be higher than the June forecast.

Economists predict inflation will remain tame. Fifty-three percent said the personal consumption expenditures price index, the Fed’s preferred price gauge, won’t show a third consecutive month of readings of 2 percent or higher until the final quarter of 2015 or later. The index has been below the Fed’s 2 percent target for more than two years.

India’s infrastructure mkt to reach $ 6.6 trn by 2025


India’s infrastructure market is expected to touch USD 6.6 trillion by 2025, which will be nearly 12.5 per cent of the Asia-Pacific, says a report. According to consultancy firm PwC, the Asia Pacific infrastructure market is expected to grow by 7-8 per cent a year over the next decade to over USD 53.6 trillion by 2025 and representing nearly 60 per cent of the world total.

The increase in infrastructure spends in the country is likely to be driven by sectors like housing, telecom, healthcare, education, transportation, among others, it said. “Overall, India’s share of the Asia-Pacific infrastructure market is expected to continue to grow, reaching around 12.5 per cent or USD 6.6 trillion by 2025,” PwC said in its report.

According to the report, transportation and utilities investments are expected to triple over the coming decade as income and travel demand will rise and the country’s population will increasingly congregate in urban centres. “The ongoing development of technology services sector, as well as demand from households, is likely to drive investment in telecommunications infrastructure.

The population is expected to grow much faster than other countries in the region, which will further boost demand for infrastructure sectors serving households,” the report said. While annual healthcare investment is forecast to grow around USD 37 billion by 2025, education infrastructure spending will likely to reach USD 18.9 billion.

“The huge growth in infrastructure spending will be driven by key factors such as Asia’s economic growing prominence, trade competitiveness, and the current widely recognised infrastructure deficit across the emerging markets of this region. “Asia is now the world’s primary growth engine, with China, India and Southeast Asia offering a very large consumer base and low-cost workforce, with high

RBI chief Rajan says limiting reliance on foreign debt


The Reserve Bank of India (RBI) is limiting the country’s reliance on foreign debt and will continue to do so, governor Raghuram Rajan said on Tuesday. “We are limiting our reliance on foreign debt. It’s important we keep it this way,” he said during a speech to university students.

Rajan’s comments came at a time when foreign institutional investors have nearly exhausted their USD 25 billion allocation in government debt, leading to expectations that India would raise limits soon. Rajan also said the RBI had reduced the current account deficit “substantially”. The current account deficit for April-June stood at USD 7.8 billion, sharply higher than USD 1.3 billion in January-March but narrowing from USD 21.8 billion a year ago.

Trade deficit narrows to $10.83bn in Aug; exports slow


The trade deficit narrowed to USD 10.84 billion in August versus USD 12.2 billion in July. Exports and imports rose marginally on an annual basis, but gold imports surged over 175 percent in August on a year-on-year basis. Gold imports in August stood at USD 2.04 billion against USD 738.7 million, in the same month a year ago. Silver imports, however, fell to USD 245.14 million versus USD 265.8 million on a year-on-year basis.

Overall imports grew only 2.08 percent to USD 37.79 billion. Exports in May and June had registered a growth of 12.4 percent and 10.22 percent, respectively. In July, export growth further fell to 7.33 percent. In April-August period, exports rose 7.31 percent to USD 134.79 billion, says Ministry of Commerce and Industry’s data.

On the other hand, in the first five months of this financial year, imports dipped by 2.69 percent to USD 190.94 billion during. Oil imports declined by 14.97 percent in August to USD 12.83 billion. However, non-oil imports in August increased by 13.82 percent to USD 24.95 billion

Aug WPI inflation at 5-yr low; eases to 3.74% Vs 5.19% MoM


clap1Inflation data based on wholesale price index (WPI) for August hit a five year low at 3.74 percent. It stood at 5.19 percent seen in July

Food inflation in August hit a lowest level since January 2012. It eased to 5.15 percent versus 8.43 percent on a month-on-month (MoM) basis. Further, August fuel inflation also hit a five-year low with the fuel and power group inflation declining to 4.54 percent versus 7.40 percent (MoM).

Meanwhile, June WPI inflation has been revised to 5.66 percent from 5.43 percent previously. Despite WPI inflation cooling off the Indian equity benchmarks gave a muted reaction probably because the Reserve Bank of India (RBI) closely watches the CPI inflation data rather than WPI while taking a decision on interest rates. Experts see today’s data as an impressive one, which indicates that the pace of growth of inflation has been slowing down, but they say one should not hope for a interest rate cut anytime soon.

The next RBI monetary policy is on September 30.

Flipkart,Snapdeal, Amazon to vie for Android 1 mkt


Competition in the booming multibillion dollar Indian smartphone market is further set to intensify with e-commerce giants Amazon, Flipkart and Snapdeal all set to launch Google’s much-awaited sub-USD 100 (around Rs 6,000) handsets today.

Google is launching the Android One devices in India today. In June this year, the US-based tech giant had announced the ‘Android One’ initiative to bring in under-USD 100 handsets aimed at bringing the next one billion population to the Android operating system ecosystem. While homegrown online marketplace majors Flipkart and Snapdeal will be exclusively selling Android One smartphones from Spice and Karbonn, respectively, US-based e-commerce giant Amazon’s Indian arm will sell handsets from Micromax. All the three handset makers have come out with teasers of their launch.

It is not the first time that device makers have partnered with e-commerce firms for launching their products. Motorola and Xiaomi have successfully launched their smartphones on Flipkart, while Spice, Micromax and Intex have launched their devices on Snapdeal.

According to research firm IDC, smartphone sales in the country grew almost three-fold to over 44 million in 2013, buoyed by affordable devices made by local firms such as Micromax and Karbonn. In the second quarter of 2014, 18.42 million smartphones were shipped in India. Though Samsung is the leader with a 29 percent market share, Micromax (18 percent), Karbonn (eight percent) and LAVA (six percent) are close competitors.

While Android is the dominant operating system globally, other OS’ like Windows and iOS (Apple) are also gaining traction. Also, newer platforms like Firefox and Tizen may emerge as strong challengers to Google’s platform. Google’s attempts to also important as it aims to capture a larger share of the entry-level segment.

Must eliminate diesel subsidies now: Raghuram Rajan


With crude oil prices falling globally, the Reserve Bank governor on Monday pitched in for eliminating diesel subsidies completely. However, he cautioned that geopolitical risks – Ukraine and Middle East – continue to remain and these low crude prices may be a temporary phenomenon.

On the macro-economic front, the IIP and CPI data released on Froday point to the fact that recovery is still some time away. But Rajan says India is on path to recovery. He says when compared to other emerging markets, what workd well for India is the emergence of a stable government.

Better-than-expected monsoon and strong auto sales that indicate better consumption levels point to good days ahead. Inflationary trends too are in-line with RBI forecast. Rajan says though the macro indicators are improving, the economy is not completely out of the woods yet.

Despite all the positives, credit growth numbers have not picked up that well. Rajan says for a positive growth push, investment growth needs to pick up. On the recent deluge in Jammu and Kashmir, the RBI governor said the central bank will work with other banks to restore normalcy in the region.

Rajan seemed pleased with mobile companies and banks coming together to offer mobile banking services, while adding that he expects mobile banking to grow explosively.

Indian economy to grow at 5.6% in FY’15: FICCI


The Indian economy will expand by 5.6 percent during 2014-15 even as the Reserve Bank is not likely to cut interest rates this year, according to FICCI’s latest Economic Outlook Survey. “The new Government, guided by the objective of restoring growth and governance, has given very positive policy signals in its first 100 days. We see the confidence amongst investors slowly returning and hope that going ahead the momentum on the implementation front will build up,” said the survey.

The economists who participated in the survey also felt that RBI will consider a cut in policy rates only in the first quarter next year, as household inflationary expectations remain high. The central bank will wait and watch until there are definite signs of inflationary pressure abating, they said. Retail inflation is expected at 7.8 percent this fiscal , in sync with RBI’s indication earlier this year.

The minimum and maximum range for GDP growth in the current fiscal is indicated at 5.3 per cent and 6 per cent respectively, as against 5.3 per cent estimated in the previous round of the FICCI Survey. This reflects a clear return in optimism and economic activity is expected to continue with this momentum in the second half of the current fiscal year as well, FICCI said.

While agricultural growth is expected to remain steady despite a weak monsoon, outlook for the industrial sector seems to have improved considerably. It is expected to grow by 4.7 per cent in FY15, which is 1.6 percentage points more than the growth estimate in the previous survey round in June. The growth in the services sector is expected to remain pretty much at similar levels as was reported last time. The sector is likely to grow by 6.9 per cent in FY15.

Next week very crucial event FED Meet…..


Fed meeting

It is the event of the week: the September Federal Open Market Committee meeting. Policymakers from the US central bank will update economic forecasts and may give some insight into how it will end its bond buying programme.

Interest, however, falls squarely on how and when the Fed will lift interest rates. Fed chair Janet Yellen has remained dovish and somewhat dismissive of several improving economic data – indicating she would like to keep accommodative policy in place – but investors are aware that not everyone on the committee agrees.

The Fed is expected to taper its monthly asset purchase programme by an additional $10bn to $15bn.

Positives & Negatives of this Week


positve

Positives:

  1. Job openings are at the highest levels since 2001.
    2. Average price of gasoline fell to $3.42 on supply glut (lowest level since February)
    3. Retail sales gained 0.6% m/o/m. up from a flat July (which was revised up 0.3%).
    4. Consumer confidence rose to 84.6, up from 82.5 and above the 83.3 expected.
    5. NFIB small business index rose to 96.1, half a point from the highest readings since ’07.
    6. Chinese exports rose 9.4%, better than the 9% expected; German exports rose 4.7% in July, well above the 0.6% expected.
    7. Industrial production in the Euro Zone rose 1% m/o/m after falling three of the last four months.
    8. The US budget deficit shrank to $128.7B, down from $147.9B from last August.

Negatives:

  1. Initial jobless claimes came in at 315k v 300k expected.
    2. The S&P 500 and the Dow both finished in the red for the first time in six weeks.
    3. Mortgage applications fell 2.6% w/o/w to the lowest level since February.
    4. Chinese imports fell 2.4% y/o/y vs expectations of a 3% gain.
    5. German imports fell 1.8% m/o/m vs expectations of a 0.2% rise.

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