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Inflation at 0.26%, IIP at -1.2%, PMI still underwater


WPI Inflation has come down to 0.26%, an all time low. The 10 year bond yield suddenly dropped from 6.95% yesterday to 6.69% today, something quite strange as the RBI sold 12,000 cr. worth bonds today. Usually, on a bond-sale day, prices of bonds drop, making yields go up – yet, we saw a near 3% RISE in prices today. Does this mean inflation staying low indicates a lowering of interest rates?

If not, then there is a crisis waiting to happen, and banks are loading up on g-secs. Which one of the two – a good question to ask, and let’s hope for the former.

Indian IIP data, released today, shows a sustaining decline. IIP has dropped 1.2% from Feb 08, the third consecutive declining month. In fact, it’s now declined in four of the last five months. And if it doesn’t get much better in March, we’ll see a steeper drop.

There is some more bad news with the Purchasing Managers Index (PMI) data; The ABN AMRO Indian Manufacturing PMI stayed under 50 (Below 50 signifies contraction of orders, and above is expansion) meaning the IIP data is likely to look bad for March as well.

(Source: Markit Economics)

The reading of 49.5 is better than the Feb reading of 47 – but under 50, output will continue to flag. Export orders seem to have slowed down considerably at 43.5; but new orders and employment continue to be above 49. (Broad data across economies here)

U.S. Unemployment claims have gone to the highest levels ever (absolute terms) at 5.84 million. This week, another 654K people had “initial” claims – meaning at least 6.54 lakh people lost their jobs last week!

Markets worldwide are going up, and this is an interesting rally. It’s pretty difficult to make the case for a V shaped recession, so it’s likely to be a false one – yet, there’s no calling the top. After 3400 on the nifty, there is no reason why we shouldn’t go further up. If it doesn’t hold, there’s likely to be another long grinding breakdown.


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