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Inversion of yield curve, a possible recession?

Investors were literally on the edge of their seats, glued to television sets when the 2-year and 5-year yield curve inverted in December after Fed raised the rates to 2.25%-2.5%. It was prominent that market hadn’t expected another hike in December which was evidenced by the worst single month decline in S&P in years. However, strong economic numbers, low unemployment and better than expected third quarter earnings managed to pull market into the green territory. Not only Fed, in its dovish tone, tried to pacify investors reciting low possibility of a hike this year, positive updates on the seemingly never-ending trade war with China has also kept investors bullish. Certainly, it seemed like market was off to its best year in a decade. Nevertheless, celebrations couldn’t last longer. While the fear of recession nagged investors since late last year, roaring market has been able to disguise it somehow. But, the recent inversion of three-month and ten-year curve brought back the

Geopolitical tensions, trade concerns and growth of non bank lenders

While people were quick in deriving parallels from the past recessions when the spread between 2 year and 5 year treasury notes went negative, the first inversion of the yield curve since 2007, there doesn’t seem to be any unanimous consensus on what could lead to a next recession. It’s been an unprecedented turn of events that has left the market pondering about whether there will be a recession or not. On one hand, we have these signs of economic contraction with long term yields getting lower than short term yields posing a fundamental risk to financial institutions, on the other, strong GDP numbers, lowest level of unemployment and positive inflation give an all-together different picture. While it's rational to think that economy won’t grow as much as it has in the past year, saying that there will be a recession next year is a little far fetched. Public reaction towards wide spread dissemination of a possible recession has led the market to one of the sharpest declines

Fed sounded hawkish, pointed towards the next rate hike

Well, Fed has decided to keep the rates unchanged this time but sounded quite hawkish for a further rate hike. Robust economy, strong employment numbers, and rising inflation are some of the reasons behind the tightened monetary policy, however, severe contraction can push away investors from the Equity market, some of which could be seen by a drop in all indexes post-Fed meeting, shedding all previous day gains. While people seem to be celebrating the widespread media dissemination of rising average wages, there isn’t much focus on real wages. Current average nominal monthly wage growth sits at 3.4% but taking an average monthly CPI of 2.4% into consideration, real growth comes down to mere 1% which is better than that of 2017 but still far behind the peak of (3.6%-1.9%) 1.7% in 2016. Increasing inflation is an issue but in absence of any substantial increase in demand amid trade wars, political tensions in Europe and weak global cues, inflation doesn’t seem to go much b

RBI’s recent monetary policy can extricate Indian economy in short term

Recent surge in Indian equity market might have brought cheer to the jittered investors, but credit should be given to the RBI Governor ‘Urjit Patel’ for his austere move of buying back govt securities to infuse capital into parched Indian market, especially at the time when the sanctity of the central bank is being questioned by the government. Government has always been at loggerheads with central bank over economic policies, even pointed out by the last RBI Governor ‘Raghuram Rajan’. It might have turned severe this time with government threatening the autonomy of central bank leading RBI deputy governor coming forward quoting “Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire and come to rue the day they undermine an important regulatory institution.” However, the tensions seem to have eased off with markets finally gaining momentum, US waiving Iran’s sanctions and record GST collection ah

Indian Shadow Banking bust

Indian Shadow Banking bust Is IL&FS, Lehman Brothers of India? What actually led to the fall of IL&FS and how it can affect the economy Depreciating rupee, plunging stock market, government bailouts and IL&FS debt crises, these past few days have been really hard for the Indian govt. It wouldn’t be wrong to say that economy is in a dangerous condition. The only plausible argument government has put by now to justify the plummeted rupee is rising oil prices. Country’s current account has taken a hit with oil prices touching $85, highest since November 2014. While this might be one of the reasons, it certainly is not the only one. In my previous article I wrote about major reasons for the fall in rupee and how government can tackle it. In this article I am going to talk about severity of the recent IL&FS crises that led to one of the biggest bailouts of financial industries. Recent strings of defaults and huge amount of NPAs have shaken the financial in

Falling rupee has become Indian govt's worst nightmare before elections (1 USD = 72.78 Rupees). Here's what it can do

Real reasons of rupee weakening and how Indian govt should tackle it (1 USD = 74.43 Rupees) While it’s fascinating to see how exchange rates move in tandem with macroeconomic factors, continuous decline in rupee has raised lot of eyebrows lately. Most of the media and publishing houses have attributed this to current account deficit which sits at $48.72 bn, highest since the record $88.16 bn of 2012-2013. While CAD indeed is one of the factors contributing to rupee downfall but certainly it’s not the only one. Few things that might need little consideration before coming onto any judgement: 1 . India has never had a trade surplus in merchandise in a decade, means its imports have been higher than exports with crude, gold and diamond being the major contributors. On the other hand, it has enjoyed a surplus in invisible trade (services, software) but not enough to offset merchandise deficit. 2 . Crude & Gold are traded in dollars, which means every time we import