Weekly View - Delivery
Amidst falling economic growth, India announced a package of corporate tax cuts to the tune of USD 20bn on Friday. India’s basic corporate tax rate will go from 30% to 22%, with an even more pronounced impact on the effective tax rate. This move will support India’s appeal as a place to do business, which is in dire need of improvement. The Bombay stock market made its biggest one-day gains in a decade as investors celebrated the government’s fiscal stimulus initiative. We view this as an example of a populist measure that is growth positive and we continue to favour India within emerging markets.
In an economy showing fewer causes for concern, the Federal Reserve delivered as expected on Wednesday, cutting rates by 0.25%. Chairman Jerome Powell emphasised the pre-emptive nature of this “insurance” cut, saying it was due to uncertainty around the global economic growth outlook and the ongoing US-China trade dispute. At the same time, the Fed also revised up its US growth forecast for 2019. The Fed dot plot, which shows how many future rate cuts the Fed members expect, suggests only three total cuts until the end of 2020. This is a bit too hawkish for markets’ (and Trump’s) liking, with the yield curve flattening and the US dollar strengthening slightly as a result.
Alas, the global economy is clearly not yet cured of its oil syndrome. The drone strike on Saudi Arabia that hit the world’s most important oil facility caused the biggest ever disruption to the oil price. While Saudi officials claim the facility’s return to full production should be achieved by the end of September, we are sceptical. Given the increase in US export capacity and the global economic slowdown, the shock has not caused us to change our central scenario on oil, at least in the medium term. However, we think temporary spikes for the remainder of 2019 are likely, and are staying positive on the energy sector.