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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.

  • Arjun Ashar says:

    >Feb IIP nos – Do they factor in that Feb 09 had one day less compared to Feb 08 which was a leap year . One day in a month is 3%. The current rally may be due to the larger question of percieved stabilzation of the banks. This rally began after Pandit indicated that Citi may be operationally profitable during Jan 09. Look at Wells Fargo results, Indian auto, cement, steel during Jan -Mar 09. Lower oil prices benefit China India and US . Why be so pessimistic, the jury is still out on whether we are ok..If a person has had a heart attack, then a V shaped recovery is possible , however serious that attack may be. But if a person survives a serious car accident then his recovery may not be V shaped. If u believe 2008 witnessed a heart attack on the economy then you might as well anticipate a V shaped recovery hoping the worst is past

  • Deepak Shenoy says:

    >Arjun: The 1 day may be interesting, but it’s not an anomaly – IIP has been negative in Dec and Jan as well. I’m not sure how well IIP is calculated though. And the month effect is there (monthly targets, etc. which should somewhat negate the oneextra day thing)

    Wells Fargo seems to have it only because of a low cost fund base – not quite in increasing business. Citi – they stole it all from AIG (I posted earlier about how it seems AIG-FP unwinds made Citi etc profitable)

    Plus, have you noticed Wells Fargo didn’t announce results? It was a “pre” announcement – their actual filings will be around the 24th. Not that they won’t be profitable…but I think this is an odd thing for them, so this is an odd quarter.

    Last year was a train wreck…not a heart attack. No recovery is like this. Even 2000 wasn’t as fast as this. We aren’t in better shape than 2000.

    But rallies are rallies – it’s a good thing to make some quick money, I just don’t think it’ll last too long.