Return of green and George Orwell's Animal Farm

On Monday when we had written that history is getting created, the premonition at least proved amply right for the Indian stock markets. Markets were closed yesterday on account of holiday and have opened today in slight green.

In global news, US markets ended in green with Dow Jones scaling up 1160 points , a 4.9% rise from Monday close. The news from Whitehouse hinting on a tax cut for personal income tax payers and a package for assisting companies hit by the impact of the virus were behind the rise. Though these plans would come to fruition or not remains to be seen as the implementation is dependent on senate approval.

There is a reversal in all the safe haven assets such as Japanese Yen, Gold and US treasuries. Yen is back to 104.6 from 102, US 10 year yield which touched the low of 0.32 on Monday is back to 0.66. Gold is back to 1660 $/oz levels. Brent Oil is also up to 38$/bbl levels.

But the issue which triggered the volatility across the world i.e. the Virus threat is still to be tamed. News that entire Italy is under lockdown mode, Iranian numbers are piling up and UK health minister herself was tested positive are hardly the harbinger of a resolution. Given the numbers of new cases in China and SK are decreasing at least give the glimmer of hope that the virus can be contained in case the response is swift and decisive.

Though there is a point to reflect here. All the countries differ in their response systems. A country like China which has a centralized decision making set up will be different to a set up where the decision making is diffused and egalitarian. This difference might prove important in understanding how the virus end game will play out. In George Orwell’s Animal Farm there is a famous quote that “All animals are equal but few are more equal than others.” In Covid case also few “more equal” countries will fare differently.

Indian rupee is holding fort at 73.90 and 10 year benchmark bond is trading at 6.11. We have the inflation data tomorrow where the expectation is for a figure close to 7%. Though going solely by the inflation number, RBI wont be prodded for a cut but given that the wider world is on a cut mode, it will surely rethink the response.