Markets across the globe have been rattled today after Iran's missile attack on a US base in Iraq. The price of oil jumped as high as 4% before trimming gains. Gold rose as much as 2% as investors sought safety.
The Nikkei has been the worst hit among major markets with a fall of over 1.5%
Asia is region most dependent on Middle East crude oil, LNG supplies
Asia, the epicentre of growth for oil and gas demand globally, is the region most vulnerable to any disruption in supply from the Gulf in the event of further escalation in the war of words between Iran and the United States in Iraq.
Most of Iraq's crude oil exports from its southern Basra ports head to Asia, according to Refinitiv data. And an estimated 76% of the 17.3 million barrels per day (bpd) of crude and condensate that flowed through the Strait of Hormuz in 2018 went to Asia, according to the U.S. Energy Information Administration (EIA)
Asian refiners prefer to process Middle East crude grades as they are generally cheaper than oil from other regions due to relatively higher sulphur levels. Middle East oils also tend to be heavier grades, allowing refiners to further process residue fuel into higher-value products to boost revenue. Reuters
Saudi Aramco hits new low on U.S.-Iran tensions
Shares of Saudi Aramco opened at 34 riyals ($9.06) on Wednesday, their lowest level since the oil giant began trading on December 11, after Iran launched missiles on U.S. targets in Iraq.
Saudi stocks also dropped 1.4%, following across-the-board selling in Gulf markets amid escalating tensions between the United States and Iran.
Aramco shares are down about 12% from a peak of 38.70 riyals on December 31, but still above the IPO price of 32 riyals that valued the company at $1.7 trillion. Reuters
Time appropriate for Indian govt to boost spending, widen fiscal deficit: official
India's current fragile economic conditions call for government action to boost spending in the coming financial year, allowing for a widening in the fiscal deficit to bolster growth, a senior official familiar with government policymaking said.
The government should invoke the escape clause under the Fiscal Responsibility and Budget Management Act but stay within the prescribed 0.5% wiggle room allowed in an extraordinary year under the guidelines, said the official, who spoke on condition on anonymity.
“Going forward for next year, there is a need for both structural and counter-cyclical measures. For counter-cyclical measures the government needs fiscal space and the present conditions are appropriate to invoke the escape clause,” the official said late on Tuesday.
The government in its budget in July had proposed to bring down the fiscal deficit to 3.3% in the current fiscal year ending March 2020 and then reduce it further to 3% in 2020/21.
Most economists and market participants however see the current year's fiscal deficit touching 3.7-3.8% of the GDP, as growth has slowed drastically with the Indian economy expanding just 4.5% in the July-September quarter, its weakest pace since 2013.
A spokesman for the Finance Ministry did not respond to requests for comments.
“GST revenues are low, direct tax collections have fallen. To say the government is going to maintain a 3.3% fiscal deficit in the current circumstances is unrealistic,” the official said.
The government needs to spend in order to boost the economy as monetary policy actions alone have done little to revive credit demand and restart the growth engines. Reuters
Oil price spike clouds corporate profit outlook, putting investors on edge
The spike in oil prices due to the escalating conflict between the United States and Iran is causing investors to worry that U.S. corporate earnings will be crimped by rising energy costs.
While the energy sector would benefit from higher oil prices, other sectors ranging from shipping to manufacturing to restaurants would see their profit margins compress as gasoline prices rise. Some investors said they were acting more defensively against this backdrop.
“Oil is still not prohibitively expensive, but it's significantly more expensive than it was when companies were making their budgets a year ago,” said John LaForge, head of real asset strategy for Wells Fargo Investment Institute. “They might have the ability to pass it on or they might not, but overall there is going to be a hit to margins.”
Though at $70 a barrel the price of oil remains far below the level that would send the United States into an immediate recession, higher energy costs at a time of increasing geopolitical risks are likely to leave investors and companies skittish, fund managers and analysts said.
Over the last year, the price of oil has jumped nearly 25% according to Refinitiv data, raising costs for companies across the economy and leaving less money in the pockets of consumers. Reuters
OPEC will respond to any oil shortage if needed, but capacity limited: UAE energy minister
The Organization of the Petroleum Exporting Countries (OPEC) will respond to any possible oil shortages if necessary but it also has ”limitations”, the United Arab Emirates energy minister said on Wednesday.
“We can't replace any quantity with the spare capacity we have,” Suhail al-Mazrouei told a conference in the UAE capital Abu Dhabi.
Mazrouei said he sees no situation where there would be a fear of supply shortage and that demand was healthy and global oil inventories were “hovering” around the 5-year average. Reuters
Tens of thousands go on strike as slowdown hits jobs
Tens of thousands of workers affiliated to trade unions led a strike in parts of India on Wednesday, disrupting transport and banking services in a protest against privatisation and the growing impact of an economic slowdown on jobs.
More than 10 national trade unions affiliated to left-wing parties, including the main opposition Congress, have called for a nationwide protest against Prime Minister Narendra Modi's labour reforms. Those include the privatisation of state run companies Air India and oil major BPCL, as well as a merger of public-sector banks.
The government has warned its employees that participation in the strike in any form would lead to deduction of wages and ”appropriate disciplinary action”.
Asia's third largest economy is facing its worst slowdown in decades, and the government on Tuesday forecast 5% growth for the current financial year, the slowest pace in 11 years, blamed on weakening demand and private investment.
Thousands of people have lost jobs in the manufacturing and the construction sector and debt-ridden companies have cut their investment plans.
The unemployment rate rose to 7.7% in December from 7% a year earlier, data released by the Centre for Monitoring Indian Economy, a Mumbai-based think tank, showed. Reuters
Rupee skids 20 paise as Iran attacks US forces
The Indian rupee tumbled 20 paise to 72.02 against the US dollar in opening trade on Wednesday as Mideast tensions flared up after Iran fired rockets at US military bases in Iraq.
Asian markets dived while oil prices firmed up after Iran fired more than a dozen ballistic missiles at two Iraqi bases with US personnel in retaliation to the killing of its top general Qassem Soleimani.
At the interbank foreign exchange market, the rupee opened weak and slipped to the 72-mark against the greenback in early deals.
The local unit had closed at 71.82 per dollar on Tuesday.
Global oil benchmark Brent crude futures shot up 1.32 per cent to USD 69.17 per barrel as investors fretted over supply disruptions following the escalation in US-Iran tensions. PTI
Government projects slower GDP growth
The government expects the country’s gross domestic product (GDP) to grow at a slower pace of 5% for the full year 2019-20, as compared to 6.8% in the previous year, according to the first advance estimates released by the Statistics Ministry on Tuesday.
This estimate is in line with projections made by the Reserve Bank of India, which had revised GDP growth downwards to 5% for 2019-20 from 6.1% during its October policy.
As per the data, the manufacturing sector is estimated to grow by 2% as compared to a robust growth of 6.9% in 2018-19. Likewise, the growth in the construction sector for the fiscal is expected to see a sharp decline to 3.2% as against a growth of 8.7% in the previous year.
Economic growth slowed to a six-year low of 5% in the first quarter of the 2019-20 fiscal, while slipping further to 4.5% growth in the second quarter (July-September).
The advanced estimates also forecast slower rate of growth for real Gross Value Added (GVA) at 4.9% as against 6.6% in 2018-19.
Experts, however, feel that it may be difficult to achieve the projected 5% growth given the rising oil prices and expected decline in government expenditure. Read more.
Gold races to near 7-yr peak after Iran strike on U.S. forces roils markets
Gold soared as much as 2% on Wednesday to vault over the $1,600 ceiling for the first time in nearly seven years, as investors flocked to safe havens, after Iran launched retaliatory missile strikes against U.S. forces in Iraq. Spot gold jumped 0.8% to $1,585.80 per ounce by 0250 GMT. Prices hit their highest since March 2013 at $1,610.90 earlier in the session. U.S. gold futures rallied 1% to $1,589.30.
Iran launched a missile attack on U.S.-led forces in Iraq in the early hours of Wednesday, followed by a “second round” of attacks against U.S. bases in Iraq. The strike by Iran comes hours after the funeral of Tehran's top military commander Qassem Soleimani whose killing in a U.S. drone strike last week has raised fears of a wider war in the Middle East.
“Fears of uncertainty and further escalation in this military confrontation is dragging up gold prices,” said Margaret Yang Yan, a market analyst at CMC Markets. “This (Iran attacks) is definitely fuelling demand for safe havens, not just gold but also yen, while equities are being heavily sold off.” Risk aversion spiked as financial markets were thrown into disarray after the attack, sending Asian stocks tumbling and oil rocketing.
Gold is considered a safe investment in times of political and economic turmoil. Reuters
Indian markets open negative
In line with global trends, the Sensex and the Nifty have opened with losses (around half a percent).
It hasn't been the best of starts to the new year for the Nifty (down around 200 points since the start of the year):
Indian stocks set to open lower as oil surges after Iran attacks U.S. forces
Indian equities were set to open lower on Wednesday, with Singapore Nifty futures dropping 1.7% to a four-week low as oil prices surged after Iran fired missiles at American forces based in Iraq.
Brent crude futures soared to as much as $71.75 to their highest since mid-September 2019 and by around 0148 GMT was up $1.83, or 2.7%, at $70.10.
India imports about 80% of its oil needs and a rise in crude prices could spike import bill and prices for essential commodities for the third biggest oil consumer.
Fears of a disruption to oil supplies gripped markets after Iran, in the early hours of Wednesday, launched a missile attack on U.S.-led forces in Iraq in retaliation for the U.S. drone strike that killed an Iranian commander. Reuters
