Global Markets Ended On A Positive Note – Sunday, Jan. 8

Global markets started 2017 on a positive note. The DJI came tantalisingly close to exceeding the 20,000 milestone. This was on the back of December jobs report, which showed that the economy added 156,000 jobs in December and average hourly earnings grew 2.9% over the past year, the fastest annual increase since 2009. While the Federal Reserve will watch for other signs of improvement as well, this report supports the committee’s view that the economy can handle two to three short-term interest rate increases in 2017 as inflationary pressures rise headed into the new year. The DJI Index was up by 1% for the week gone by.

The data on the UK’s services industries also attracted much market attention when released on Thursday. The readings showed that Britain’s economy finished 2016 strongly, growing at the fastest rate since mid-2015, even though companies faced some of the fastest-rising costs of the past five years as sterling weakened after Britain voted to leave the European Union, an industry survey showed. The stock market in the UK was up by 0.9% for the week gone by.

The German Purchasing Managers’ Index (PMI) for manufacturing rose to 55.6 from 54.3 in November. This was seen as its highest level in 35 months. The uptrend here was driven by rising demand from Asia and the US Data showed that manufacturers in Germany raised their output at a quicker pace. The output expansion was seen on the back of improvement in domestic demand and new business overseas. Another set of data for Germany showed that inflationary pressures increased in December. Input costs rose at the fastest pace due to weaker euro. German Inflation jumped closed to ECB’s target of 2%, hitting the highest level in more than three years. The ECB has been pouring money into the euro zone economy in an attempt to boost inflation from a near-deflationary level. However, the strong inflation data will lead ECB to reserve the stimulus. The stock market in Germany was up by 1% for the week gone by.

China’s foreign exchange reserves fell for a sixth straight month in December to the lowest since early 2011. China’s reserves fell nearly US$320 billion in 2016, after a record drop of US$513 billion in 2015. The yuan depreciated 6.6% against the surging dollar in 2016, its biggest one-year loss since 1994, and it is expected to weaken further this year despite authorities’ aggressive attempts to slow its descent this week. The stock market in China was up by 1.6% for the week gone by.

Back home, the market managed to finish the first week of the calendar year 2017 marginally higher. The BSE-Sensex ended on a positive note and was up marginally by 0.5%. This was on the back of continuous buying by domestic institutional investors (DIIs) even as an inconclusive Goods and Services Tax (GST) meet, hawkish minutes of meeting from the US Federal Reserve, fall in manufacturing activity in December and H1B visa woes kept the momentum shaky through the week.

The earnings season for the 3QFY17 will start from next week. Similarly, investors will react to the Central Statistics Office’s projection of Gross domestic product (GDP) growth data released yesterday, which pegged economic growth at 7.1% in FY17, lower than 7.6% in the previous financial year. Investors will also await industrial production, manufacturing output and inflation data scheduled to be released on Thursday next week.

 

Key World Markets During the Week

 

On the sector indices front, Realty, Metal and Oil & Gas stocks led the gainers this week. On the other hand, stocks from IT witnessed selling pressure.

 

BSE Indices During the Week

 

Now let us discuss some key economic and industry developments during the week gone by.

According to the Nikkei Purchasing Managers’ Index (PMI) survey by Markit, India’s manufacturing sector growth contracted, for the first time this year in December, as demonetisation curbed new orders as well as output of companies. The manufacturing PMI touched 49.6 in December, compared to 52.3 in the previous month. Any reading above 50 indicates expansion, while the one below that suggests contraction. Four of the five sub-components of the index – new orders, output, employment, suppliers’ delivery time and stock of items purchased – contracted in December. Input costs accelerated at a faster pace than charges for output. This suggests companies couldn’t entirely pass on the rise in input costs (driven by an increase in global commodity prices), as the cash crunch dented consumer demand.

This is the first time since the beginning of 2016 that the manufacturing PMI has come below 50, the point that separates growth from contraction. This also marked the biggest month-on- month decline in the index in over eight years or since November 2008 when the global economy had slipped into a severe downturn post Lehman collapse. Survey participants widely blamed the withdrawal of high-value rupee notes for the downturn as cash shortage in the economy reportedly resulted in fewer levels of new orders.

Though December saw a mild decline in manufacturing output, the average reading for October-December remained in the “growth terrain”, suggesting a positive contribution from the sector to overall GDP in the third quarter of 2016-17, the survey said.

According to a leading financial daily, Foreign Direct Investment (FDI) in India increased by 27% at US$27.82 billion during the April-October period of the current fiscal as against US$21.87 billion in the same period last fiscal. The FDI numbers indicates that the government has been able to create a suitable climate in which the foreign investors feel confident that interest is protected. According to Department of Industrial Policy and Promotion (DIPP), manufacturing constituted around 41.5% of the equity inflows, while non-manufacturing were around 58.5% during April 2014 to Sept 2016. Total FDI in the country in the last financial year was US$55.6 billion, up by 23% over previous year. DIPP also stated that trademarks filing has increased by 10% and its examination grew by 250% so far this fiscal till November and added that trademark pendency has come down to 3 months and is expected to be 1 month by March 2017.