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US (un)employment, crude prices and more...

Jan 7, 2008

    Recession worries loom over the US economy, as was indicated by the gloom that surrounded the country's stock markets on Friday. A weaker than expected employment report led to the Dow close the session more than 250 points down. The tech-laden NASDAQ closed almost 4% in the red. A weak housing market, banking crisis and inflationary concerns have already clouded the US markets for over past one month now. These concerns are seemingly the basis that the Federal Reserve might use for a further interest rate cut when it meets later in January. As a matter of fact, the subprime fiasco of 2007 has dealt a major blow to the US economy, resulting in a considerable meltdown in the housing market and unleashing a credit crunch worldwide. Add to this the fact that commodity prices especially energy and food are on the rise and it is widely touted that the US economy is headed into a recession in 2008. The US Fed has been on its toes reducing the Fed rate and infusing liquidity into the system to facilitate credit expansion and its European counterpart, the ECB has also been at the forefront in this regard. However, all of this so far has not provided any relief. This is because given that the extent of these subprime losses cannot be gauged, banks are considerably vary of lending further. We believe that any severe slowdown in the US will play an important role in shaping up the world economy in 2008 and will be likely to impact most those countries that are largely exporting to the US.
  • The impending IPO of Reliance Power has sort of opened the gates for primary market funding of power projects in the country. Following the company's mega issue, which proposes to raise almost US$ 3 bn, another company - JSW Energy - proposes to raise US$ 1 bn to build power generation projects. A leading business daily has reported that the company plans to seek regulatory approval this month and complete the share sale by the end of March 2008. There definitely is excitement surrounding these mega issue that have sort of raise the benchmark valuations of power sector stocks. But, is the euphoria justified?


  • Stock markets are not the only places where heightened action is taking place. Commodities like gold and crude are also inviting tremendous attention these days - the former on account of the uncertainty surrounding the global economy and the latter due to unending demand growth and supply constraints. Especially with oil hitting its all-time high recently (of US$ 100 per barrel), the world economy, which is already reeling under a US recessionary threat, is facing the spectre of rising inflation. As far as the India is concerned, though the impact has been softened, as the government has shielded consumers from any fuel price hikes, rising deficit might force the policymakers to take some action sooner than later. And interestingly, the Left seems to agree to this as well!


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