The Gaza Ceasefire Is Good News For Global Economy

US President Joe Biden and President-elect Donald Trump both announced the Gaza ceasefire deal, under which hostilities would cease for six weeks, Hamas would free about a third of the 100 Israeli hostages it holds, and Israel would free dozens of Palestinian prisoners. However, Israel’s prime minister Benjamin Netanyahu is still warning about wrinkles remaining to be ironed out. The fact remains that how Donald Trump would react if the deal that he has taken credit for, turns out to be fake news is an ‘unknown unknown’, whose reality Netanyahu might not be too keen to find out. This means that there would, at the least, be a six-week break in the ongoing Gaza killings, starting this coming Sunday.

If the ceasefire holds, oil prices should lose one layer of built-in risk premium. The Houthis in Yemen should lift their blockade, allowing ships to pass through the Suez Canal and avoid having to circumvent the southern tip of Africa, on their way between Asia, on one side, and Europe and the Americas, on the other. Logistics costs should come down, giving global trade some good news, as Trumpian tariffs and probable counter-tariffs cast a dark shadow over global trade and growth prospects.

Post-War Reconstruction

If the ceasefire holds, the next stage would be to worry about rebuilding Palestinian lives in Gaza. That narrow strip of land, home to 2 million Palestinians, is now mostly rubble, after 15 months of pounding by Israeli firepower. Everything has to be rebuilt, from homes, hospitals, mosques, schools and police stations to power stations, sewerage, drinking water supply and telecom networks.

China is most likely to offer help. The fact is that its Belt and Road Initiative needs viable projects. Rebuilding Gaza would be a giant project, chunks of which would come in handy for China as it looks to deploy abroad the surplus steel, cement, construction equipment, earth-moving machinery and the like that its sagging domestic market cannot absorb. With a view to extending soft power and generating goodwill, China could offer a fair bit of the financing needed to rebuild Gaza as grants, rather than the loans that BRI financing normally constitutes.

Europe is struggling with its own economic woes, and would not have much money to spare for Palestine. The US, under Trump, wants to Make America Great Again, and does not want to spend American dollars on non-Americans.

The UN and the World Bank are likely to mobilise some funds for Gaza. India would do well to offer its expertise, manpower, project management skills and some bit of cost-free financing to the cause of rebuilding Gaza. If the government were to incentivise Indian companies to set up subsidiaries in the region to produce the inputs to reconstruction and rehabilitation, that would permanently benefit the region, and generate lasting goodwill.

Markets And The Rupee

India’s stock market indices and the dollar exchange rate of the rupee continue to dance to distant drum, specifically the US drum. US inflation has come in higher than expected in December, at 2.9%. But core inflation, stripping out volatile food and fuel, has come down. Jobs growth continues to be robust in the US. If the economy is doing fine, and inflation continues to be sticky well above the US Fed’s target of 2%, there is no reason for the Fed to rush to cut rates.

Ever since Trump won the presidential race and declared his intent to slap high tariffs on imports into the US and to slash taxes, rates have been likely to stay higher for longer in the US. Yields have gone up, sending capital into the US to chase those higher yields, and raising the dollar index to over 109. The index measures the dollar against six major currencies. The strengthening of the dollar against all major currencies is the reason why the rupee seems to have sunk so low against the greenback. There is an even chance that as Trump’s actual policies are unveiled after he takes office on January 20, the dollar index will dip, and the rupee will seemingly strengthen.

Hindenburg Research Disbands Itself

In the good old days, Jack, the giant killer, after having killed his particular giant, lived happily ever after. In these prosaic times, giant killers recuse themselves, even disembody and disappear, once their work is done. Hindenburg Research is famous/notorious in India for its reports on Adani, and Sebi chairperson Madhabi Puri Buch. These reports wiped some $150 billion off the Adani group’s market capitalization, and triggered a US Securities regulator chargesheet against Adani for alleged bribery in India and misleading investors in the US.

Hindenburg did not come into being to take on Adani. It had exposed, in 2020, the deception of an American market darling, Nikola, who claimed to have made breakthroughs in making trucks run on electric batteries. Hindenburg procured and publicised footage that showed that a whizzy run a Nikola truck was purportedly making on electric power was actually the truck mock-up simply rolling downhill. Hindenburg had taken short positions before it made its finding public, and made money when the share price crashed.

It had similarly made money from the bad news it made available on Adani. Now, founder Nathan Anderson has decided to hang up his boots, and focus on his life.

A Trillion-Dollar Trade Surplus For China

China has run up a trade surplus of $992 billion, $8 billion short of a trillion dollars, with exports of $3.58 trillion and imports of $2.59 trillion. This smacks of unfair practice, for countries that resent China’s trade surplus against them. But for countries that have no compunction about letting in cheap solar power modules, windmills, electric vehicles, besides traditional stuff like steel and chemicals, China’s ultra-cheap exports are a bonanza.

China’s massive state subsidies for its new technology areas have made its exports in segments vital to the energy transition from hydrocarbons to renewables ultra-cheap. This is a boost from the perspective of combating climate change. However, in countries that have their own industries making renewable energy equipment, electric batteries and electric vehicles, these Chinese exports pose an existential threat to the domestic industry.

Right now, Germany is staring at the destruction of its vaunted automobile industry, in the face of competition from ultra-cheap and uber-functional Chinese electric vehicles, even after they bear additional European tariffs.

The incoming US President is likely to be braced by China’s latest trade figures. They would seem to justify his protectionist policies, and challenge his ability to defend American industry in the face of Chinese pricing.

India Space Docking Experiment Succeeds

Indian Space Research Organisation has succeeded in making satellites in space come together, exchange electric power, and separate. Only three other space programmes have succeeded in carrying out such a manoeuvre. India hopes for a larger slice of the space business.

Back on earth, the once-in-12-years religious gathering, the Maha Kumbh, has begun in Uttar Pradesh’s Prayagraj. It is supposed to be the world’s largest religious gathering, attracting 200 million people. Managing such large crowds in a relatively small town, even with an ad-hoc town being built for the purpose, without stampedes, lawlessness and outbreaks of cholera is a gigantic managerial challenge.

Both ISRO and the Kumbh Mela embody the entrepreneurial and managerial capability of the public sector. Those who routinely disdain public sector inefficiency would do well to bear that in mind.