It was an eventful week with number of international news, most notably US China trade war, European Commission’s fine on banks for forex rate manipulation and Tata Steel-ThyssenKrupp calling-off their proposed JV. Domestically, WPI inflation for April at about 3% probably gives RBI room for further rate cuts.
WPI inflation for the month of April stood at 3.07%, marginally lower than 3.18% in March. CPI inflation is also at nearly the same level, at 2.92%, marginally higher than 2.86% in the previous month. Inflation in ‘manufactured products’ was 1.7%, lower than 2.2% in March. Inflation in this group is widely tracked to gauge the extent of overheating of economy and low manufacturing inflation should give RBI room for further interest rate cut. While food inflation rose to 7.4% against 5.7% last month, this is somewhat desirable to reduce the distress in the rural economy. Food inflation was barely 0.9% in April last year. Fuel & power inflation has also come down with easing of crude oil prices.
Tata Steel and ThyssenKrupp called-off their proposed joint venture late last week based on objections raised by the European Commission. The commission’s fears relates to creation of a monopolistic market which would harm the consumers. The two companies had been in talks to merge their European operations for several years now to survive in the high cost and over-supplied market of Europe. JV projected to have a capacity of about 20 mn tons. The European business has been an Achilles heels for Tata Steel even since the purchase of Corus and despite selling a part of it some years ago, the company has not been to able to achieve profitability for the rest. (Read more on Tata Corus, available to subscribers of combo and archives plan – https://indiaeconomyandbusiness.com/tata-steel-corus/)
In another Tata group development towards business realignment, Tata Chemicals (TCL) announced transfer of its consumer products business to Tata Global Beverages (TGBL). Consumer products business of TCL comprised of salt and branded food products whereas TGBL has interest primarily in tea and coffee business. TGBL would be renamed Tata Consumer Product Ltd to reflect the new focus. Total sales of the business are nearly Rs 1,800 crore and would increase the TGBL’s top line by about 25%. TCL’s presence in these businesses was accidental as its core product served as raw material for salt business, which it expanded to branded food products sensing a market opportunity leveraging its distribution network. Tata Group has been re-aligning its business over last year or so which included closure/transfer of telecom business and transfer of defense business. However, the group having more than 100 operating companies would still need to do more restructuring to simplify the business structure.
After months of negotiation, US finally increased tariff from 10% to 25% on nearly $200 bn of goods imported from China. In retaliation, China has also increased tariff on goods imported from US but that amount is much less at about $50 bn. US had increased the tariff in July last year on about $50 bn of goods and had warned of further hike from January if trade negotiations are not successful. The hike was subsequently postponed by another 90 days on achieving significant progress in the negotiations. US import from China is close to $550 bn against exports of less than $150 bn giving China a huge trade surplus. Other than affecting Chinese economy, the sanction also has the potential to destabilize rest of the world as Chinese companies may try to push these goods in other markets. The dispute, which looked set to be resolved towards the end of last year, can actually further escalate if additional tariff is imposed on the remaining goods also. (Read more on this – https://indiaeconomyandbusiness.com/us-china-trade-war-understanding-the-dynamics/)
In another incident of cartelization and foreign exchange rate manipulation, European Commission imposed a fine of $1.2 billion on five banks – Barclays, RBS, Citigroup, JPMorgan and MUFG. The manipulation was done during the period 2007-2013. The indictment is a reminder of the earlier LIBOR scandal, considered the biggest of all forex scandals. Barclays Bank, JPMorgan Chase, Citicorp, Royal Bank of Scotland, UBS and Bank of America were imposed a total fine of nearly $6 bn by US and UK regulators for rigging LIBOR during 2005-08. The time period of the two cartels appear to suggest that the second began after the first one started breaking down! Despite these scams coming to light and the convictions, there is nothing to give the confidence that global financial industry is free of these scourges yet. Further, the cartelization does not seem to be limited to financial sector. In another incident, 42 states of USA filed law suit late last week against 20 Pharma companies, which includes some Indian companies also, for cartelization and inflating prices of generic drugs.
(To check Weekly Round Up for earlier weeks, please click here)
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