Indian economy 4Q Gross Domestic Product is due to be released on February 28th, 2018. An analyst at Swissuote has shared on the 26 February Indian Economy 4Q GDP Forecast what should be expected.
26 February, Swissquote – The greenback started the week off the wrong foot and erased partially last week’s gains. The dollar fell across the board as the risk sentiment continued to improve. The dollar index was off 0.40%, down to 89.51, while stocks across the globe rallied, while Treasury yields eased slightly. US Treasury yields have increased substantially over the last few months but it failed to translate into a strong USD. Why is this happening?
What higher US interest rates mean
Lately, financial markets have been increasingly worried about the potential acceleration of inflation pressures. How did investors come from being worried about not enough inflation to being worried about too much inflation, and this is just a couple of months?
Indeed, the market spent the last few years monitoring closely inflation measures, hoping for stronger price pressure. At that time, an upward surprise in either the core CPI or the core PCE would trigger a dollar rally on speculation that the Fed would accelerate its tightening pace.
More recently, the opposite happened. The buck takes a dive every time economic data points toward stronger inflation. Lately, the publication of the January job report, which saw a surprise increase in wage growth, and to some extent the January CPI report, illustrates perfectly the situation.
This tends to suggest that the market has reached a different conclusion regarding the consequences of the Fed unwinding its massive balance and tightening short-term interest rates. Indeed, one could assume that higher interest rates imply a stronger dollar amid improving the investment environment. However, higher interest rates also mean a higher cost of debt.
This has various implications, particularly for the US government and private companies. Regarding the former, the consequences are significant as higher short and long-term Treasury rates mean that the federal government’s borrowing costs will rise, which affects the budget and the national debt.
The era of low-cost borrowing is ending for the government, which means higher deficit and a challenging path to fiscal sustainability. On the top of it, Trump’s tax cuts could only exacerbate budget deficit and debt. The markets are therefore right to be worried.
Effects on Private Companies
Regarding the effects on private companies, higher interest rates will obviously increase the cost of debt. It goes without saying that many companies will, therefore, become less profitable as financing costs increase. However, for companies highly indebted, which still exist only because interest rates were so low for so long, the consequences are worse.
Combined with investors’ insatiable appetite for yields, the fall will be hard. Deleveraging means that many “zombie” companies will pay a high price. Eventually, higher interest rates could mean higher unemployment and slower economic growth.
The rapid surge of stocks’ volatility and the persistent weakness of the greenback suggest that financial markets are finally taking this situation seriously – and for good reasons. This is hard to tell what will be the medium and long-term consequences. However, one can assume that it won’t be smooth sailing as both private companies and the US government will be heavily impacted by this change of paradigm.
It is, therefore, reasonable to assume that the US dollar will keep grinding lower, while the recent spike in equity volatility may just have been a warning shot. After all, there is a reason why the Fed has been so cautious in normalizing monetary policy.
26 February Indian Economy 4Q GDP Forecast
Indian economy 4Q Gross Domestic Product is about to be released on February 28th, 2018. Estimates anticipate a September – December growth of 6.90% (previous: 6.30%), its fastest pace since December 2016. Indian 4th quarter Gross Value Added, which provides a productivity measure for the entire economy is to be published at 6.60% (previous: 6.10%), its highest rate in 2017.
Both indicators, as a matter of fact, have been strongly impacted by a low base year, mainly caused by recent Government’s demonetization measures. Recent GDP growth will give further support to a rate hike in April 2018, following Royal Bank of India’s hawkish minutes on February 21st, 2018 (between 75-100 bps).
Since RBI’s minutes last week, Indian Sensex trades 542 points higher, at 34’395 (+1.60%) while 10-year Government yields decreased by -0.29% at 7.69%. USD/INR appreciated since last week, currently trading at 64.74 (+0.80%).
This article 26 February Indian Economy 4Q GDP Forecast was written by Arnaud Masset & Vincent Mivelaz, analysts at Swissquote. While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein.
This document does not constitute a recommendation to sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or in any other kind of investments.