Global Economic Update - Safe haven assets to act as a Guardian Angel: Angel Commodities Broking

Mr. Prathamesh Mallya (Chief Analyst - Non-Agri Commodities & Currencies, Angel Commodities Broking):

"Uncertain events in the global arena are rocking the stable boat of investments in the recent times. Global markets are either trading in red or mixed most of the times. Demand for safe haven assets has surged substantially. In a matter of one month, Japanese Yen and COMEX Gold have appreciated by more than 2 percent and 6 percent respectively.

The ongoing tensions surrounding the Korean Peninsula which saw test launches of at least four ballistic missiles in recent weeks all targeted towards the United States has put the investors' on a risk off mode. In return, the US President Trump has vowed to impose tougher sanctions on North Korea which Russia feels will only add fuel to fire.

On the other hand, Harvey and Irma are creating storms not only in the geographic area of America but also to its currency. US Dollar Index has weakened by more than 1.5 percent in the current month. Adding to the woes is the current debt ceiling discussions between Democrats and Republicans which is not reaching the dead end only to dent faith in Trump's administration and his pro-growth policies.

In Europe, the Brexit drama is getting all the unnecessary ingredients making it more tangled. The chief EU negotiator feels that the Britons are still unaware of the loss of opportunities for leaving the bloc. Britain, on the other hand, has been denounced as "completely confused" and "economically illiterate" after a leak document showed Britain's position on post-Brexit EU migration.

Another event that created uproar in the European and other markets is the recent ECB Monetary Policy Statement which showed no change in the interest rates. However, the mere hint at October tapering pushed the Euro currency to a new high in two years.

Now the catch is, for a country that is trying hard to heat up the prices, a surging currency becomes a hindrance. This clearly gives grounds to the policy committee to not even think about clawing back its stimulus program which the ECB President has confirmed to. Mario Draghi has clearly stated that until the inflation target of 2 percent is not achieved the committee shall continue with its asset purchases.

Coming to the Indian subcontinent, the RBI's newly released data on demonetization has not gone down well with the investors. It seems from the 1,5,44,000 crores of 500 and 1000 demonetized notes only 16,000 crores of notes has not come back. To print these new notes, the RBI had to incur Rs. 21,000 crores of expense.

This shows us clearly that the Demonetisation move was a pretty expensive move for the government to tackle black money. To catch hold of 0.1 percent of black money, 1 percent of the Indian GDP was sacrificed which soured investor sentiment. There has been an outflow of $ 102.05 million from equities and debt markets in the month of September'17. The Indian Rupee has also been trading in a range bound manner for quite some time.

Concluding, markets are aware of the ongoing tensions in the global arena that shall prompt them to refrain from making any risky investments. It is certain that the Korean saga will continue for long giving a chance to JPYINR (CMP: 59.30) spot to surge towards 60 mark in the near term given its safe-haven attributes.

Disagreements within the Congress over policies and disappointing releases of economic datasets from the US on account of Harvey and Irma storm shall keep the US Dollar Index lower in turn supporting the Indian currency in turn. USDINR spot shall strengthen towards 63.40 levels in the coming days.

In spite of the discomfort shown by the ECB over Euro strength, EURINR spot is all set to trade higher towards 77.80 levels in the near term. Reason being the weak American currency accompanied with the word 'autumn tapering' that shall play with the investors mind for some."

Source : Equity Bulls

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