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Wednesday, March 18, 2015

Positive US Job Data negative for India(emerging markets)...?

The Fed meets.All eyes on Janet Yellen.Will she?Won't she?

What if she does?

How will emerging markets and India in particular respond?

The RBI governor has been trying to cut swap deals with the likes of Sri Lanka,etc to try and keep the volatility manageable.

Going by past record of Ms Yellen,its clear she will not risk a 1937 style slump despite Ray Dalio,chief of the $ 165 bl Bridgewater Associates hedge fund being apprehensive that a rate hike will lead to a rout in the markets.

The strength in the US job market has led a lot of experts to predict that the numbers will be strong going forward.Dissenting voices say the job addition is low paying jobs replacing high paying ones.

If the Fed stays patient?

The $ that has seen a huge runup will most probably correct strongly.The US dollar Index has risen 25% since July 2014.A dovish surprise postponing the rate hike will trigger a sudden,strong decline but the majority view is that the Fed will remove the word 'patient' from  its statement this time.

Mohammad El Erian is of the opinion that June might be too soon but September will certainly see rates moving northwards.A strong dollar and sharp decline in crude prices in the last six months has brought down US inflation,in January 2015 it contracted 0.1%.



A strong dollar is negative for the US economy and that is what the doves are holding on to.

As far as repercussions on India goes,the quantum of withdrawal of QE should not be cause for concern as there is still abundant liquidity in the market.The GDP has been growing 5% and going ahead with the measures unveiled in Budget 2015 the momentum push in infra and manufacturing will begin to have a positive impact on growth,coupled with crude prices staying between $40-$60 where India remains dependent on imports.