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U-Turn For OPEC? US Stocks Rally et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Nov 8, 2018 2:03 PM 3 min read
Editorial

Good evening reader,

 

We ended our email on Tuesday wishing Democrats well in their attempt to gain some notion of control through the Midterms.

 

(Yes, there was no email on Wednesday. We snitched a day off ;). Only in the spirit of Festive laziness.)

 

Most liberals (socially liberal at least) breathed a sigh of relief as Democrats did indeed snag more than half the seats in the House of Representatives.

 

The impact of US Midterms on politics aside, a line from a WSJ article on its potential effect on American Markets caught our eye:

 

"The S&P 500 hasn’t declined in the year after midterm elections since the 1946 cycle—and has climbed 15% on average—regardless of which party won or lost control of Congress."

 

Considering DJIA's surge post results, that begs a question. Why? Why do Markets appear to prefer a Congressional Power divide? Perhaps investors would rather have predictable status quoism instead of erratic decisiveness?

 

Brings in lots of parallels to the Indian context where throughout our history, a significant majority government hasn't always led to economically well-received policies. Today is apt to make this point considering it's the 2nd year anniversary of demonetisation.

 

Presenting Today's Top 6 Business Stories through our End Of Day Wrap Up:

 

INDIA

 

NBFCs see surge in private equity investments.

As per a Business Standard article and data from Venture Intelligence, Non-Banking Financial Companies (NBFCs) have received c. $2.04bn investment in 25 private equity deals so far this year vs. $1.09bn in 32 deals during 2017. This is the highest in four years and 88% more than the PE investment made in the full 12 months of 2017.

 

The report comes as NBFCs see significant erosion in their market value due to asset-liability mismatches, tightening of liquidity and reduced ability to seek higher short-term borrowings following the IL&FS default.

 

Two years since demonetisation, MSME sector still struggles to recover.

A survey by the All India Manufacturers’ Organisation (AIMO) conducted across 25,000 units, comprising nearly 50% of micro and small industries and 25% each of medium and large firms, has found a sustained blow to their bottom line.

 

According to the same report, over 86,000 of the total of 270,000 employees have lost their job in the aftermath of demonetisation.

 

India loses complaint against Japan over safeguard duty on hot-rolled steel at WTO.

As per a Livemint article, the World Trade Organisation (WTO) largely upheld Japan’s complaint which challenged the “definitive” safeguard duties imposed on imports of hot-rolled steel flat products by India during September 2015 and March 2018 which violated core global trade rules.

 

US/INTERNATIONAL

 

Dow Jones Industrial Average surges nearly 550 points; US stocks rally post Midterm elections, Asian stocks follow suit.

S&P 500 rose 2.1% on Wednesday, the largest gain in the session after an Election Day since 1982. Following suit, South Korean and Japanese indexes ended higher on Thursday. Major companies including Tencent, Samsung and Toyota traded higher.

 

The jump is likely on back of a divided Congress, one where Democrats control the House of Representatives and Republicans control the Senate. This is likely to put in place some checks and balances, with a lesser chance of tax cuts or other measures that could drive up US borrowing costs by stimulating more robust growth and quicker inflation.

 

Robyn Denholm to replace Elon Musk as Chairman at Tesla.

Tesla appoints Chief Financial Officer of Australian telecommunications company Telstra Corp as Chairman. Denholm has been on the Tesla board as an independent director since 2014 and has had senior roles at other Silicon Valley tech companies including Juniper Networks, Sun Microsystems and Toyota.

 

The announcement comes shortly after CEO Elon Musk stepped down as Chairman following a deal with the Securities and Exchange Commission.

 

OPEC may consider another cut in oil production in 2019.

Saudi-led OPEC and its allies including Russia had earlier this year decided to relax curbs on output, after pressure from Donald Trump to reduce oil prices and make up for supply losses from Iran. However, following the US midterm elections and crude futures wilting on back of another historic shale oil surge, the cartel might change its decision in the meeting which is to be held this weekend.

 

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