Markets Are Weak, Trump Rally On Wall Street Pauses
On Wall street, the Trump victory rally has finally paused and investors are now focussed on interest rates.
On Episode 436 of The Core Report, financial journalist Govindraj Ethiraj talks to Priyanka Kishore, Founder and Principal Economist of Asia Decoded
(00:00) The Take
Markets are weak, Trump rally on Wall Street pauses
Gold prices down almost Rs 6,000 from peak.
Forex reserves down $29 billion from September high of $704 billion
What does China + 1 mean for India in the new Trump regime?
Real estate in
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Monday, the 18th of November and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
The Take
Indian businesses are seeing a cyclical downturn as is quite evident from the slowing earnings for several companies, including consumer facing ones.
How long could this slowdown last ?
It turns out that it is becoming tougher to project that mostly for two reasons. First, no one seemed to see the slowdown coming or at least kept it a closely guarded secret if they did.
Second, there was a clear post-Covid surge in spending, evident in many parts of the world and of course India.
How long will it be before the effects of this surge, reflecting higher than normal consumption, starts to wear off and normalcy returns ?
The answer is not clear.
Moreover, there are some surprising and even shocking insights within the automotive market which should also hold out lessons for the rest of the economy.
In August, Maruti Suzuki chairman RC Bhargava said that low cost and small cars were necessary for India’s economic and social conditions. And that a temporary setback, which is falling sales, would not change strategy.
At that point in the financial year, Maruti’s mini and compact segment sales had fallen some 12% while utility vehicles were up over 16%.
Indeed, for most of India’s automotive industry, SUVs and premium cars have been doing well or better, even as dealers were staring at record inventories of over 80 days.
Last week, Mr Bhargava in an interview to the Business Standard sounded more grim.
According to him, while gross domestic product growth is expected to be over 7 per cent this year, the car market is not following suit.
The pent-up demand for cars that emerged post-pandemic, combined with supply constraints like the non-availability of semiconductors affecting production, has now dissipated, he acknowledged, adding that they were seeing negative growth in the sub-Rs 10 lakh car segment, which represents two-thirds of the market. Only the over-Rs 10 lakh segment is growing, so overall growth is muted.
Clearly, a 7 per cent growth rate cannot be sustained when one-third of the market is growing while two-thirds is shrinking, he said.
One reason he says for this is that higher safety standards have meant more expensive cars and the load is higher on smaller cars.
As a Federation of Automotive Dealers Association (FADA) head told me several months ago, incomes have not kept pace with the rise in prices for small cars, up from Rs 6 lakh to Rs 10 lakh.
The interesting point that the Maruti Chief tangentially raises of course is why GDP growth numbers unlike before are not running parallel with car sales.
This by the way is something other consumer facing industries are also pointing out that they are seeing a divergence between overall growth numbers and their growth.
Possibly this reflects the heavy weightage of Government rather than private spending in GDP numbers. Possibly.
Bhargava also suggests that this could be one reason why two wheeler sales are doing well in recent years, people are not upgrading to cars as they would traditionally do but upgrading within two wheelers.
This is the surprising part because it means a behavioural shift, caused either by prices or by some other factor, like the attractiveness of the latest generation of two wheelers.
Remember until now it was a fairly linear progression from two wheelers to cars for families in India.
So when could demand return ?
Which is the somewhat shocking part.
Bhargava says growth will not exceed 3-4 per cent for a few years until economic growth helps bridge the affordability gap in the lower end of the market.
“So, the 7-8 per cent per annum growth will take a while to return — I don’t know exactly how long,” he said..
So what is Maruti or presumably other companies in a similar boat doing ?
Bhargava says since it's clear that the passenger car market in India won’t grow very fast, we need to focus on exports. We are tapping into markets like South America, South Africa, West Asia, and East Africa, among others. We are also starting with EVs and see a good market in Europe.
Few companies make small internal combustion engine (ICE) cars now, but there is still a market for them, he says.
The good news of course is that Maruti’s market is not the United States of America where Trump’s new tariff regime as and when it comes next year will hit exporting businesses world over.
And that brings us to the top stories and themes of the day.
And that Brings Us to the stop stories and themes
Markets are weak, Trump rally on Wall Street pauses
Gold prices down almost Rs 6,000 from peak.
Forex reserves down $29 billion from September high of $704 billion
What does China + 1 mean for India in the new Trump regime?
Markets & More
Before we get to what happened in the markets, let's get the important news out of the way, that it will be a holiday shortened trading week.
This is because of assembly elections in Maharashtra on November 20, Wednesday for the 288-member state legislative assembly will be held on November 20.
So I will be going out and voting as I hope you will be if you live in this state.
Back to the markets, on Thursday, November 14, the BSE Sensex fell 110.64 points to close at 77,580.31, while the NSE Nifty50 declined 26.35 points to end at 23,532.70.
The benchmarks lost around 2.5% last week and marked the sixth weekly loss in seven weeks, Reuters said, pointing to worries about a slowdown in consumption adding to concerns over earnings moderation and foreign outflows.
The Nifty50 closed below its 200-day moving average for the first time since April 2023, Reuters added.
Could we pick up some cues from Wall Street ?
Am not sure but it is worth noting that the Trump victory rally has finally paused and investors are now focussed on interest rates.
The Dow Jones Industrial Average lost 305.87 points, or 0.70%, to end at 43,444.99. The S&P 500 slipped 1.32% and closed at 5,870.62, while the Nasdaq Composite fell 2.24% to 18,680.12.
President-elect Donald Trump said on Thursday that he planned to nominate vaccine sceptic Robert F. Kennedy Jr. to lead the U.S. Department of Health and Human Services which sent pharma stocks tumbling, CNBC reported.
The information technology sector of the S&P 500 was the worst-performing corner of the market, down more than 2%, as Nvidia, Meta Platforms , Alphabet and Microsoft tumbled.
Tesla was a rare exception among its “Magnificent Seven” peers, as shares of the electric vehicle giant and so-called “Trump Trade” were higher by 3%.
Of course it is not clear how or why Tesla is benefiting because Trump at least in the past has been anti electric vehicles and green technology unless this means that Tesla will get a free pass henceforth. But that would bring things back to the current situation, would it not.
Oil Prices Soft, America’s New Energy Man
Meanwhile, sticking to energy, oil prices are now holding around $71 a barrel, surely on the softer side.
Meanwhile, President-elect Donald Trump nominated Chris Wright, who runs a Colorado-based oil and natural gas fracking services company, to lead the Energy Department.
Wright is CEO of Liberty Energy Inc., has no previous Washington experience and according to Bloomberg has made a name for himself as a vocal proponent of oil and gas, saying fossil fuels are crucial for spreading prosperity and lifting people from poverty. The threat of global warming, he has said, is exaggerated.
On the other hand, it is not like companies like Liberty Energy are strangers to ESG or environmental, social and governance practices.
I visited the Liberty Energy website just to check what they claim they are doing.
Nothing dramatic except of course making production of shale oil more efficient using technology and tools like electric and natural gas powered engines for frac fleets or hydraulic fracturing or fracking to extract oil and gas from rock into which high pressure water and sand is injected.
Liberty says it transports sand more efficiently.
I am not sure if any of this moves the needle but shale gas production has made America the largest oil producer in the world with an over 22% share with Saudi Arabia at 11%.
Yes, you might have thought it was the other way around.
So more drilling will mean lower prices which is great for countries like India but not clear how that helps producer countries beyond a point.
Gold Prices Falling
Gold prices on Friday were on track for their biggest weekly decline in over three years as expectations of less aggressive interest rate cuts by the U.S. Federal Reserve lifted the dollar, denting allure for bullion among investors, Reuters reported.
Spot gold lost 0.1% to $2,565.49 per ounce and prices have fallen more than 4% so far this week, touching their lowest since Sept. 12 on Thursday.
Physical gold premiums in India climbed to a near four-month high this week, driven by a rebound in demand as prices dropped, while top consumer China saw limited retail buying interest, Reuters reported.
Earlier last week, domestic prices in India fell to 73,300 rupees per 10 grams earlier this week after hitting a record high of 79,775 rupees last month.
That turned on Thursday and prices were up at Rs 77,050 per 10 grams in the national capital amid subdued demand trends in the global markets, according to the All India Sarafa Association.
The precious metal of 99.9 per cent purity closed at Rs 77,750 per 10 grams in the previous session, a day after falling marginally by Rs 50 on Wednesday.
Silver also plummeted Rs 2,310 to Rs 90,190 per kg against the previous close of Rs 92,500 per kg.
Rupee Is Weak
The rupee is now holding at a record low of around Rs 84.39 to a dollar, even as India's foreign exchange reserves (INFXR=ECI)
dropped for a sixth consecutive week to a near 3-month low of $675.65 billion as of Nov. 8, data from the Reserve Bank of India (RBI) showed on Friday.
The reserves fell by $6.5 billion in the reporting week and are down $29.2 billion from the record-high of $704.89 billion hit in late September, Reuters said.
Changes in foreign currency assets are caused by the central bank's intervention in the forex market as well as the appreciation or depreciation of foreign assets held in the reserves.
Tomatoes
Meanwhile, prices of tomatoes, a key villain in the recent spike in food inflation, up 42% by the way, have declined.
The Government’s consumer affairs ministry said retail tomato prices declined around 22.4% month on month to an average retail price of Rs 52 per kg on November 14 as opposed to Rs 67.50 per kg on October 14.
Prices of tomatoes are of course quite volatile and there is little or no way to project prices as economists we have been asking and have been telling us because production is at the mercy of changing weather patterns and whether and if farmers are incentivized at that point to plant while distribution is at the mercy of weak supply chains.
All of which affects prices.
Projecting Trump’s Tariff Regime
Asian economies are in the middle of a major economic transformation and there are more factors shaping the economic outlook than we can count on our fingertips, Priyanka Kishore, Director and Principal Economist of Asia decoded, a Singapore based research firm has said.
Key among the driving factors is Trump 2.0, global tariffs and supply chain diversification.
I reached out to Priyanka and began by asking her how she was seeing the likely post Trump world evolve, from an Asia point of view as well..
INTERVIEW TRANSCRIPT
Priyanka Kishore: Clearly, you know, he is looking to deliver on his campaign pledges and converting them into policies, as you can see from his cabinet selection, which is pretty hawkish on China. And so the threat of tariffs, which from this region's perspective, Asia's perspective, is, you know, probably the top concern at this point of time, is pretty large. And to, you know, see why it is so widespread and applicable almost to everyone, I'm going to talk through three criterias.
The first and topmost, of course, is do you have a surplus or deficit with the U.S.? And barring Singapore, every country in this part of the world has a surplus with the U.S. Of course, China the largest, Vietnam following that, but really no one here is running a deficit other than Singapore. But then, you know, the second criteria, are they only going to look at overall trade balances or they go a step further and they are also going to look at sectoral trade balances. Singapore does not have a sectoral deficit with U.S. in every category. It runs a surplus in pharmaceutical products. So, you know, the first criteria might be, you know, necessary. It's not sufficient to exempt you.
So therein comes the second. And then the third, where, you know, they also look at, someone might say, but then, you know, some of these are your strategic partners. Why don't you exempt them?
But then they're going to say, are they backdoors for entry for China into U.S. goods? And they start looking at how much you're importing from China and compared to how much you're exporting to the U.S. Vietnam gets struck down immediately on this metric. It's got like a share of 34 percent, 35 percent imports from China.
Also, most of ASEAN and India, too, is importing more and more from China. So in short, I think the point I'm making is that the entire region is in the firing line as far as the tariffs are concerned. Of course, it remains open to debate whether he's going to implement 60 percent on all goods from China, then 10 to 20 percent on everything across the region.
Then I think that is impractical from the U.S. perspective, their economy perspective. So eventually it might end up being targeted. So from China, it's things like advanced exports, cleantech exports that are more at risk, probably FMCGs, consumer goods will see a lower tariff rate being applied.
Similarly, it will be more targeted for the rest of the region. But it's pretty unpredictable, and this is going to cause a lot of uncertainty for businesses for the time being.
Govindraj Ethiraj: And you're saying that if, for example, countries like India, which also import from China and then manufacture here, classic case being Foxconn supplying to Apple, and then after having assembled those components, it becomes an iPhone and then it goes to the United States. So would the U.S. target those kind of imports as well in terms of duty levels?
Priyanka Kishore: See, as I said, with the Trump, we don't know. They're definitely going to try to push and say that, you know, find different suppliers. They could start from that point.
They could probably say, you know, not target Apple to begin with, but they could target something else. So far, the risk for India is that, you know, we export a lot of labour intensive products to the U.S. In the first term of Trump, we lost preferential access on things like textiles. These are going to have a bigger knock-on effect on domestic demand.
If gems and jewellery and textiles get hit by tariffs, it doesn't hit iPhones because that's an Apple company, but hits something else. You will see an outsized impact on domestic demand in India compared to their export share.
Govindraj Ethiraj: So you're saying that if it's an American company like Apple, which is importing back into the United States, and there could be many other examples, you're saying they may not be as badly affected as a pure Chinese company, for example, or an Indian company, which is exporting its product from here.
Priyanka Kishore: I think so, at least to begin with, they will try to persuade American businesses to onshore. They're saying that, but there's a real challenge in doing that. You cannot bring back businesses just with tax cuts.
There is a resource scarcity in the U.S., as we can very well see from TSMC, which is trying to build a chips factory, but is facing semiconductor engineering shortages. So there are practical challenges to onshoring. So while they work that out, they might go easier on their own companies, but it puts the country as a whole in some sort of firing line.
Govindraj Ethiraj: Because I would think that many Indian companies who export to the U.S. are actually exporting to American companies. So whether, for example, in apparel or textiles, it could be a Gap or an Old Navy, or obviously it could be Walmart and some of these bigger chains. So these are essentially American companies.
Okay. Let me come to the other point. China plus one has been a big theme for countries like India.
It's worked to some point and it's also not worked. So how are you seeing that?
Priyanka Kishore: So China plus point is an important mitigating factor for the region. It's going to continue because it's driven by some very fundamental factors, which were in play even before the U.S.-China trade war. So for example, rise in labour costs in China that was leading to factories migrating out of China to Vietnam even before, you know, from 2010.
Then of course, there is supply chain risks have brought into focus that job referral concentration has various challenges associated with it. So businesses want to diversify irrespective of the U.S.-China trade war. That will continue.
This adds a complication because if the U.S. is going to inspect very closely that what are the rules of origins of the goods that you are exporting to the U.S.? Where are they coming from? How much of it is, you know, China linked? It might slow down the process in certain sectors.
But then again, you know, I think opportunities are also there because the Trump is a self-proclaimed climate sceptic. So they probably step back in green supply chains and their India and ASEAN who want to, you know, increase their market share in these supply chains, again, a bigger opportunity to broaden their footprint. And maybe there they are not then so worried.
Where are you importing the inputs from? So overall, I think the trend will continue. Countries have to be smart and spot the opportunities because they are dealing with a very unpredictable administration.
Govindraj Ethiraj: So you've talked about this in your Substack series, which you are still rolling out, as I can see. And you've talked about these five themes for Asia in 2025, which also reminds me that I should come back to you closer to 2025. But at this point of time, you're seeing that the region itself is going to take some shocks.
Priyanka Kishore: Yes, it's not only the U.S., China and Trump. China itself is slowing down. The region is pretty linked to China, not so much India, but ASEAN and other parts of the region.
China is a pretty dominant export destination, even though the reliance has come down over the years. It matters a lot. So there's that feeding through.
We have consumers probably turning cautious. And that's a big shift that's going to happen from 2024, where consumer was pretty resilient. And the reason for that is, of course, as exports slow down, you have the spillover impact on the domestic industries.
Unemployment could rise. People will be looking out and consumer confidence will take a hit. So you have a cautious consumer, which means domestic demand buffer might be a little less.
I don't want to sound too negative because we also have the capacity to cut rates. And sooner or later, most Asian central banks will join the cycle because while Trump policies are inflationary for the U.S., they're disinflationary for the rest of the world because they will bring growth down, probably oil and other commodity prices come down in tandem. And as you import cheaper Chinese goods, there is an additional disinflationary factor playing out here.
So that's there. Now, central banks will have to balance this fine thing of weaker currencies versus growing growth coming down. What are they going to prioritise?
I think given the FX reserves that exist in the region, we will see rate cuts that will buffer consumption, will support consumption to some degree. So the slowdown will be not falling off the cliff and they will deploy their FX reserves to manage currency weakness.
Govindraj Ethiraj: Priyanka, thank you so much for joining me.
Priyanka Kishore: Pleasure to be here.
