Markets survive round one of US-China trade war; Sensex, Nifty gain

FILE PHOTO: Chinese and US flags are set up for a signing ceremony during a visit by US Secretary of Transportation Elaine Chao at China's Ministry of Transport in Beijing, China | Reuters photo
On a day when the US and China slapped tariffs of $34 billion on each others goods, the global markets seemed relatively unfazed. In India, the markets shrugged off the concerns of a potential trade war between the US and China to close in the green on Friday. 

The benchmark Sensex closed at 35,657, up 83 points or 0.2 per cent while the broader Nifty gained 23 points or 0.2 per cent to close at 10,772.

However, investor sentiment dwindled towards the end of the session as the benchmark Sensex came off 140 points from its peak in the last hour of trading. FPIs sold shares worth Rs 9.68 billion while domestic institutions’ net purchase of shares was Rs 14.8 billion, provisional data from stock exchanges showed.

Auto and rural consumption stocks turned buoyant on account of the hike in the minimum support price (MSP) for farmers. The BSE Auto index closed 1.4 per cent higher with Hero Motocorp and Tata Motors shares gaining 3.8 per cent and 3.7 per cent, respectively. “The market showed signs of stability as the improved outlook on auto and consumption-oriented segments lifted the sentiment. However, emergence of profit booking towards the end on account of continuing trade tensions led the indices to end with marginal gains,” said Vinod Nair, head of research, Geojit Financial Services.

The global cues also remained positive as major Asian markets closed in the green. China’s Shanghai Composite closed 0.5 per cent higher while South Korea’s Kospi gained 1.9 per cent each. Even the European markets were trading 0.3 per cent to 0.6 per cent higher. “With trade wars flaring up, oil’s buoyancy, and geopolitical uncertainty showing no signs of abating, the growth in sweet spot that has characterised the global economy is in danger of unravelling,” wrote DBS group economists Taimur Baig and Radhika Rao in a report.

Asian currencies, except China, strengthened against the dollar. However, the rupee, which logged a record low (closing) of 68.93 a dollar on Thursday, recovered slowly compared to its other Asian peers. Currency dealers said intervention by the RBI prevented the rupee from closing at a lower level. The rupee recovered only 0.9 per cent during the day, one of the lowest in the region. Euro and sterling gained against the dollar, hile the recovered from its nine-month low against the greenback on heavy intervention, according to IIFL.
“There is a large outflow of foreign investors. Somehow, they seem to be more bearish about India than other countries in the region,” said a senior currency dealer with a bank.

The rupee is still Asia’s worst performing currency, having fallen 7.27 per cent year-to-date. Philippines and Indonesia, countries that run twin deficits like India, are also witnessing pressure on their currencies, which have fallen 6.55 per cent and 5.70 per cent year-to-date.

India’s bond yields, which have spurred by open market bond purchases by the central bank, and are looking for cues from US yields, also remained largely stable.

Minutes of the US Federal Reserve suggest that the central bank is well on its way to raising rates. The yields on the 10-year bonds closed at 7.87 per cent from its previous close of 7.88 per cent.

Rupee a laggard, and others too

Emerging market currencies are expected to come under pressure as nations engage in competitive devaluation to gain share in global exports, a fallout of the US-China trade war. It is likely to push up import costs and stoke inflation. In this round of depreciation, the rupee has been among the worst performing currencies in Asia. 

To stem the fall and prevent the local currency from breaching the 70-to-a-dollar mark, the RBI has been actively intervening in the market. But there are other emerging markets in the world that have fared far worse. 

Compiled by Anup Roy

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