Stock Market Update Today: Higher food, fuel, labor, and transportation costs are forcing central banks worldwide to prioritize price stability over growth. The Reserve Bank of India has raised borrowing costs by 90 basis points so far this year; and vows to do more to bring price gains below its target ceiling of 6%. Erratic weather and an uptick in virus cases risk also impeding the recovery.
India’s economy grew in May, thanks to the pent-up demand for services and higher production from the industrial sector.
Bloomberg has found the five indicators that made the needle on its ‘animal spirits’ indicator move from a value of 5 to a value of 6; which are its highest point since July and its first upward change in over a year. Though these indicators are based on single-month data to reduce volatility, Bloomberg compiles an average score.
The bright spot of the recent upturn was an increase in goods and services; which was in part due to a busy expansion of core infrastructure industries. This was followed by a spike in inflation as a result of Russia’s invasion of Ukraine and persistent demand-supply imbalances. This may affect sentiment going forward.
Higher food, fuel, labor, and transportation costs are forcing central banks globally to prioritize price stability over growth. Since the Reserve Bank of India’s interest rate hikes; its inflation target has moved from the “noted” level of 6% to a “stabilized” level.
There is a high risk of erratic weather and an uptick in virus cases, slowing the recovery of India. The number of daily virus cases has increased six-fold in the past month.
Bloomberg Economics – Stock Market Update Today
For a general sense of the growth trajectory, Bloomberg Economics offers an Index to track monthly GDP. This index is comprised of 11 indicators and weighs them based on their importance to economic health.
Business Activity
The Purchasing Managers’ Survey of India showed that activity in services increased in May to the highest level in eleven years; while momentum shifted from manufacturing. The 10th consecutive month of expansion helped pull the S&P Global India Composite PMI to a healthier level.
Business confidence continues to weigh as input costs soar, potentially keeping inflation elevated. Businesses are transferring rising costs to the consumer, which could keep inflation elevated.
Exports
India’s trade deficit grew to a new all time high of $24.33 billion in May due to increasing imports of gold; energy and petroleum from the previous month. Official data showed that commodities such as copper and palm oil staying high over the previous months had an effect on gains in merchandise imports again for the third consecutive month, while exports growth slowed during this period thanks to uncertainties around geopolitical events.
Consumer Activity
Despite facing down month for month in automobile sales the cycle finally underwent a correction; with car and two-wheeler sectors inching up slightly. In other signs of consumer activity, bank credit grew 12.1% at the end of May, from 11.1% in April. Liquidity conditions remained in surplus during this month.
Industrial Activity
Two other key indicators of industry activity show robust growth in April. Factory output soared to a 8-month high of 7.1% from a year ago, led by a 10% increase in electricity production; while manufacturing and mining increased by healthy amounts as well. This trend was seen in the growth of eight infrastructure industries, which rose to 8.4% from 4.9% in March.
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