Markets – October 26th – November 1st

International:

The story dominating headlines through most of the week was that of a successful raid by the US military to kill the ISIS leader Abu Bakr al-Baghdadi. Trump unable to contain himself tweeted “Something very big has just happened!” in the early hours of Saturday morning, and went to make the major announcement on Sunday.
The good news from the White House kept flowing in after Trump hinted at a near term partial trade agreement in China. Markets on Monday signalled a change in sentiment, which was further bolstered by stronger than expected earnings results. Monday saw the S&P 500, Dow, Nasdaq and 10-year Treasury yield end in the green with gold falling 0.65%. Despite signs a possible agreement, China continued to flex its muscle, warning the US later in the week that criticism over the detention of Uighurs (an ethnic minority in the state) was not “helpful” to the talks. The Asian giant aware of the strength it holds will show no signs of bending to the US’s will, and we can expect friction between the two countries before a deal is hammered out.

Oversees Britain’s actions seems to have given Brexit a new meaning, that of “The act of telling everyone at a gathering that you are leaving but staying”. Nonetheless, the news of the European Union agreeing to extend the Brexit deadline until January 31 (the departure date was previously set at 31st October) was taken positively by the markets with the pound strengthening as much as 1.286 against the dollar, with fears of a no-deal Brexit momentarily residing. Despite the good news the looming elections to take place in Britain towards the end of the year will undoubtedly restore volatility and scepticism to European markets, although this is yet to be seen.

Later in the week the Fed once again cut rates, by 25 basis points this being the third cut this year, although indicating that it may pause rate cuts from here. The cut resulted in a growth in investor confidence amongst emerging markets as we will soon see in India. The US Commerce Department also announced that the US economy grew 1.8% in 3Q20 well above expectations although slightly lower than the 2Q20 figure of 2%, this despite the seemingly looming recession.

India:

Following the Feds announcement of a rate cut domestic markets saw a sharp jump as investors got optimistic at the prospects of foreign fund inflow amid positive domestic and global cues. The BSE Sensex rose over 200 points on Thursday. As the markets inched closer to its all-time intraday high, the Sensex traded 220.26 points or 0.55%, the NSE also advanced 0.55% to 11908.9.

Adding to the optimism India rose to the 63rd rank in the World Bank Ease of Doing Business Index, a significant achievement and likely to attract more foreign firms into India to set up businesses. Despite the rise in India’s position on the Index firms have discounted the gains from reforms that have taken place pointing out that that complex regulation still exists, and these complexities are beyond the 41 measures tracked by the World Bank. MSMEs also point out that they bear a disproportionate burden of compliance with some reporting that a third of their time is spent meeting all the rules, laws, filing returns on time correctly. For example, a chemical firm with just one factory has 72 applicable Acts, more than 1,000 compliances, averaging 10 filings monthly. the World Bank report showed that an Indian business spends 252 hours paying taxes, last year this was 275, an improvement, but Chinese firms spend 138 hours paying taxes while business in the best-performing country Singapore spends 49 hours.

The centres revenue receipts are also showing increasing signs of strain, in a recent report on the estimated expenditure plans for the next five years to the 15th Finance Commission Uttar Pradesh estimated that the state will suffer a loss of 13,500 crores in FY23, a result of the implementation of the Goods and Service Taxes.

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