Tag: EU

Why India is poised to withstand Brexit

Why India is poised to withstand Brexit

24/06/2016 14:35

Even as a quick glance at the state of financial markets on Friday may suggest doom and gloom for global stocks, currencies and commodities amidst Britain’s shocking verdict to leave the EU, Asia’s third biggest economy is poised to overcome this initial knee-jerk reaction, analysts opined.

Taking cues from its global counterparts, investors at Dalal Street seemed panic-stricken as the Sensex plunged by over 1,000 points but pared some losses in noon trade. Similarly, the rupee which sank to a four-month low of below 68 per dollar, cut losses to trade at 67.84 per dollar amid reports of RBI selling dollars to rein in the volatility.

Central banks across the globe have warned that Brexit may result in slower global growth, which could cut demand for commodities such as oil, benefiting India, a net crude importer. Crude oil was down over 5 per cent in the international market on Friday to USD 47 per barrel mark. It’s worth noting that every USD 1 dollar drop in crude oil prices leads to roughly savings of USD 1 billion in India’s oil import bill, helping narrow trade and current account deficits, and keep a lid on inflation, offering more room for monetary accommodation.

While the rupee may suffer some short-term volatility, the local currency is seen to be more stable than its emerging market peers. Further, India’s hefty forex reserves kitty of a record more than USD 360 billion will ensure that India has plenty of ammunition to overcome any swings in foreign capital flows.

Thanks to its strong macroeconomic fundamentals including a robust consumer-driven growth model, India, today, is ranked as one of the most attractive foreign investment destinations. In 2015, India received the highest FDI flows globally, surpassing the likes of China and the US, as the Modi government moved to ease FDI policy in several sectors.

The above factors will continue to ensure that strong fund inflows from abroad will keep coming to India and Brexit may not be all that bad news for India.

Brexit a reality as UK choses to leave EU

Brexit a reality as UK choses to leave EU

24/06/2016 11:13

Britain has made a historic decision to part ways with the European Union, ending its over four decade long marriage with the 28-member block as Brits rejected the continent’s postwar political and economic order, putting the future of the entire European project in limbo, raising doubts over Prime Minister David Cameron’s credibility, and throwing global financial markets in a tizzy.

BBC projection showed a comfortable 52 per cent support for the “Leave” campaign which was led by Boris Johnson, the former mayor of London, who is set to succeed David Cameron as the UK’s next prime minister, with the latter now having his credibility seriously tarnished after a loss for the “remain” camp that was backed by him and could garner only 48 per cent support.

Even as majority of the United Kingdom voted to leave the EU, voters in Scotland showed their firm support for the UK remaining in the EU, significantly raising the chances of Scotland calling for another independence referendum.

Moreover, Brexit comes as a major shock for European politics, probably the biggest since the fall of the Berlin wall, political analysts opined.

The bitter divorce between Britain and the EU could set a dangerous precedence for other countries in Europe, meaning that the whole European project may start to soon fall apart.

For the British economy, Brexit could mean another UK recession, a massive hit on investment and jobs, fears reflected by pound traders with the sterling tumbling by a record.

Brexit crushed global financial markets on Friday with the euro plunging the most since its introduction in 1999, Asian stocks nosedived with Japan’s Nikkei shedding 8 per cent as global investors braced themselves for a period of heightened political and economic uncertainty.

Gold futures fall as EU referendum outcome eyed

Gold futures fall as EU referendum outcome eyed

24/06/2016 08:47

Gold futures fell nearly0.65 per cent in the domestic market on Thursday as investors and speculators braced for the outcome of the EU referendum who’s poll was already completed. The results to be unveiled today will show whether Brits have opted to keep their country in the trade block or exit the European Union.

While opinion polls remained split over the outcome of the Brexit vote with three of the four polls last night showing two percentage points or less separating the two camps, odds published by bookmakers indicate a ‘remain’ win with nearly one-in-four chance of Britain leaving the EU. A win for ‘remain’ may curb safe haven appeal for gold.

At the MCX, Gold futures for August 2016 contract closed at Rs 29,927, per 10 gram, down by 0.65 per cent after opening at Rs 30,077, against the previous closing price of Rs 30,122. It touched the intra-day low of Rs 29,852.

Maize ends higher by 0.09% as demand picks up

Maize ends higher by 0.09% as demand picks up

03/06/2016 09:46

Maize prices closed higher by 0.88 per cent on Thursday at the National Commodity & Derivatives Exchange Limited (NCDEX) as a result of a rise in the demand from exporters and poultry industries. At the NCDEX, maize futures for June 2016 contract closed at Rs. 1,375 per quintal, up by 0.88 per cent, after opening at Rs. 1,374 against the previous closing price of Rs. 1,363. It touched the intra-day high of Rs. 1,376.

USA, China and Brazil are the top three maize producing countries in the world while the prominent exporters of maize are USA, Argentina and Brazil. Chief importers are Japan, EU, Malaysia, Taiwan, Indonesia etc.

The European Crisis Can Worsen Further Into a Global Phenomenon

The European Crisis Can Worsen Further Into a Global Phenomenon

There have been innumerable debates on the effectiveness of QE or rather the lack of effectiveness. What is QE? Quantitative easing (QE) is a type of monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective. However, these debates have not brought about any decisions that can be said to be better, especially in the European region. A glance at the stock market is more than enough to understand the economic crisis that has got all investors scared.

One national leader from Europe had recently made a proposal, which seems a bit unique at first glance, to deal with the debt bubble and the financial crisis. On the surface, the proposal does seem to be sound even though it looks rather unorthodox. The problems begin to appear when you dig a little deeper. Once you do so, you will realize that the proposal will end up doing the exact opposite of what it wants to do.

Developed economies need to consider the actual economic state of Iceland as an example of recovery before a bigger catastrophe strikes the market and the future becomes black with debt.

Iceland has a total population of less than 320,000. The economy of this country is by no means diverse. The dominant economic sectors are energy, fishing and aluminum. Iceland is also home to the oldest functioning legislative assembly in the world called the Alþingi which was founded in the year of 930. Unfortunately, their experience was not enough to save the economy of Iceland. Instead, Iceland has ended up becoming another Greece. The parallels are too similar to ignore.

In the last 7 years, Greek households have lost around $215 billion as per estimates. Even today, the unemployment percentage in the country is 27%. 44% of the incomes fall below the poverty line. The current debt of Greece to GDP is 175% which is the highest in the European Union and the annual deficit is 12.7%. The International Monetary Fund and the European Union have already given $332 billion as loans to rescue the economy of Greece. This has caused the national debt of Greece to rise to $470 billion. This is unimaginable for a country whose economy is only 1.4% of the entire European Union.  Majority of this money has gone as payments to French and German banks which had high investments in the debt of Greece. In just six years, the output of Greece has decreased by 25%.

What Happened to Iceland?

In Iceland, the situation was almost a reversal of the scenario in Greece. Overextended Icelandic banks began to collapse due to their mortgage assets which had inflated greatly. In just a short period of time, the financial sector decreased by four-fifths of its size. Iceland let the banks fail and began to impose capital controls instead. Bank debt held by foreigners was sacrificed. Iceland could do what it wanted as it was not a part of the European Union. It could default and devalue to restore its problem as it had its own currency – the krona.

This scenario had been used by Greece in the past. However, it is no longer an option.