Vinod Bhat's Market Pulse - Aug 10, 2022
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Global inflation is still increasing, with food and energy prices still the main drivers, and remains the key concern for markets currently.
π While inflation in Asia is contained, inflation in developed economies is high and broadly based. However, UK and US have started to show signs of deceleration in core goods inflation and energy prices have seen some moderation.
π In that context, global equity markets are awaiting the July inflation report for the US to be released today. Until inflation shows signs of abating and the Fed rebalances its priorities away from inflation and towards growth, markets are expected to remain range-bound.
π Semiconductor chip makers such as Nvidia and Micron Technology reported disappointing results and warned of declining demand and supply chain constraints. Since they act as leading indicators, markets will also be keeping one eye on global growth.
π India remains better positioned both within Asia and globally as its cyclical recovery is driven by domestic demand, supportive policy reforms, and other structural factors. This will be particularly important as growth weakness in developed markets percolates into Asiaβs external demand.
π The biggest challenge that was emerging to Indiaβs macro outlook was the sharp spike in oil and commodity prices weighing on macro stability. However, with the 23-37% decline in oil and commodity prices since the Mar-22 peak, macro stability indicators are heading back towards the comfort zone.
π At the same time, the corporate sector has reduced its leverage and the balance sheets of the financial sector have also been cleaned up. This backdrop of healthy balance sheets and rising corporate confidence bodes well for the outlook for business investment.