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India Stuns Market With Surprise Rate Hike In Unscheduled Meeting Ahead Of Fed

India Stuns Market With Surprise Rate Hike In Unscheduled Meeting Ahead Of Fed

In a preview of what an overly hawkish FOMC statement today…

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India Stuns Market With Surprise Rate Hike In Unscheduled Meeting Ahead Of Fed

In a preview of what an overly hawkish FOMC statement today could do to markets, overnight India’s central bank hiked its key policy rate in a surprise move, the first hike since June 2018, leading to a broad-based selloff in bonds as the fight against inflation becomes real, with the Federal Reserve also expected to hike rates by 50 bps when it meets later today.

The Reserve Bank of India unexpectedly raised the policy repo rate - its main lending rate - by 40 bps to 4.40% highlighting continuing inflation risks amidst a broad-based growth recovery even as it decided to "remain accommodative while focusing on withdrawal of accommodation".

In order to tighten banking system liquidity, the RBI decided to increase the cash reserve ratio (CRR) by 50bp to 4.5% of aggregate deposits. The withdrawal of liquidity through this increase in the CRR would be of the order of INR 0.9tn per the RBI, and is expected to move the weighted average call money rate – the operating target of monetary policy, which was dipping below the bottom of the policy rate corridor (i.e. below the standing deposit facility, or SDF) – higher. This would aid in the transmission of policy rate hikes in the economy.

In the most recent policy meeting on April 8, the RBI made a hawkish pivot by:

  • a) recognizing inflation risks by raising inflation forecasts by 120bp from the February policy meeting,
  • b) setting inflation control as a priority over growth,
  • c) reinstating the policy corridor to pre-pandemic levels by introducing a new deposit facility at 3.75% (40bp above the existing reverse repo rate), and
  • d) changing the language of the policy stance to remaining accommodative "while focusing on withdrawal of accommodation".

In the inflation data that was released on April 12, the headline CPI print for March came in at 7% (60bp above consensus expectations) driven by an upside surprise in food prices (Exhibit 1). Food inflation increased to 7.5% yoy, highest since November 2020, driven by broad-based increase in food prices. (Exhibit 2).  Core inflation increased to 6.3% yoy which was driven by an increase in core goods inflation to 7.5% yoy (7.1% yoy in February) while core services inflation almost remained flat at 4.8% yoy (4.7% yoy in February)

It is not clear what prompted the RBI to start the policy rate hiking cycle in an off-cycle meeting, given that the Governor had earlier stated that the RBI's actions would be "calibrated and well-telegraphed", and the next scheduled policy meeting is just over a month away (June 6-8). It is possible that the higher than expected inflation print in March 2022, and policy rate hikes by other central banks, including the US Fed prompted a sharp pivot in the RBI's monetary policy reaction function.

While the RBI did not give updated inflation or growth forecasts with today's policy statement, most banks continue to forecast inflation to remain higher for longer, and materially above the RBI's last published forecast for 2H 2022. In its post-mortem note, Goldman writes that today's off-cycle hike suggests the RBI will now implement a faster and more decisive monetary policy tightening cycle, and now forecasts the RBI to hike the policy repo rate by 50bp further in the June 2022 meeting, followed by 25bp hikes each in August, October and December meetings: "We thus forecast cumulative further 125bp repo rate hikes in 2022, with an additional 100bp repo rate hikes in 2023. On a cumulative basis, we now forecast 265bp of rate hikes in this cycle from 200bp earlier."

Following the shock hike, the Indian 10-year yield rose to a three-year high and is now testing resistance from a long-term trendline originating from the 2013 taper tantrum surge. Any break and close above this resistance of 7.33% for the month will bring 7.94% into focus, with tactical resistances coming into play in the 7.50% - 7.70% area, according to BBG's Akshay Chinchalkar.

Commenting on the surprise hike, Deepak Jasani, head of retail research at Mumbai-based HDFC Securities said that India’s interest rate-sensitive sectors like automobiles and housing will be hit particularly hard by the surprise rate hike by the central bank. He said that while the RBI’s rate increase was expected, timing was a surprise, with stocks already in weak territory due to inflation, war in Ukraine.

S&P BSE Consumer Durable Index -3.8% at a two-month low; S&P BSE Realty Index -3.4%, while S&P BSE Auto Index down 2.5%; benchmark S&P BSE Sensex and gauge of bank stocks down 2.3%

That said, even in India, investors await U.S. Fed’s guidance on further tightening later in day for next session; a less hawkish outlook on rate increases could support a relief rally in stocks.

Tyler Durden Wed, 05/04/2022 - 13:07

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International

Tesla Rivals Challenge Its Lead as Nio Sets Encouraging Record

Tesla’s rivals are not even coming close to producing and delivering EVs at the same rate as the Austin, Texas-based market leader.

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Tesla's rivals are not even coming close to producing and delivering EVs at the same rate as the Austin, Texas-based market leader.

Electric vehicle makers have been struggling over the last two years to produce and deliver cars, trucks and SUVs despite obstacles such as supply chain disruptions, semiconductor shortages and factory shutdowns caused by the covid pandemic.

The industry's leading EV manufacturer Tesla  (TSLA) - Get Tesla Inc. Report on July 2 said that plant closures at its Shanghai gigafactory in April and May and supply chain disruptions led to a smaller number of deliveries than expected in its second quarter ending June 30 with 254,695, which was 26.7% higher than the same period in 2021, but 17.7% lower than its record of 310,048 delivered in the first quarter of 2021. Analysts were originally expecting about 295,000 deliveries.

Tesla's production declined to 258,580 vehicles in the second quarter compared to 305,407 in the first quarter. It had produced 305,840 vehicles in the fourth quarter of 2021.

Tesla's rivals are not even coming close to producing and delivering EVs at the same rate as the Austin, Texas-based market leader. But they keep trying.

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Tesla Rivals Struggle to Produce and Deliver Volume of EVs

Tesla rival Nio  (NIO) - Get NIO Inc. American depositary shares each representing one Class A 蔚来汽车 Report on July 1 said that it had delivered 12,961 vehicles in June for a 60.3% year-over-year increase and its highest number of monthly deliveries ever. The company also reported 25,059 EVs delivered in the three months ending June 2022, increasing by 14.4% year-over-year. Nio has delivered a cumulative 217,897 EVs as of June 30.

NIO on June 15 rolled out its ES7, a new mid-large five-seat smart electric SUV, which is the first SUV product based on NIO's latest technology platform Technology 2.0. NIO also launched the 2022 ES8, ES6 and EC6 equipped with the upgraded digital cockpit domain controller and sensing suite, enhancing the computing and perception capabilities as well as digital experience of the vehicles. The company expects to start deliveries of the ES7 and the ES8, ES6 and EC6 in August.

Chinese EV maker XPeng  (XPEV) - Get XPeng Inc. American depositary shares each representing two Class A 小鹏汽车 Report on July 1 said it delivered 15,295 vehicles in June, a 133% increase year-over-year; 34,422 in the second quarter ending June 30 for a 98% increase year-over-year and 68,983 in the first six months of the year for a 124% increase year-over year.

The Guangzhou, China-based company said in August it will begin accepting orders for its new G9 SUV with an official launch in September.

Beijing-based Li Auto  (LI) - Get Li Auto Inc. Report on July 1 said it delivered 13,024 EVs in June, a 68.9% increase year-over-year and 28,687 in the second quarter ending June 30 for a 63.2% increase year-over-year. The company on June 21 began taking orders for its Li L9 SUV and recorded 30,000 orders as of June 24, according to a statement. Test drives will begin July 16 with deliveries beginning by the end of August.

GM Follows Behind Tesla and Other Rivals

General Motors  (GM) - Get General Motors Company Report had 7,300 EV sales in the second quarter, according to a July 1 statement. The Detroit automaker's sales included deliveries of the BrightDrop Zevo 600 delivery van, GMC Hummer EV pickup, and the resumption of the Chevrolet Bolt EV and Bolt EUV production.

GM said the Cadillac Lyriq production is accelerating, with initial deliveries in process. Orders for the 2023 model year sold out within hours and preorders for the 2024 model opened on June 22.

The company said it will gradually increase production of the Cadillac Lyriq and GMC Hummer EV Pickup in the second half of 2022. 

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Spread & Containment

Tesla EV deliveries fall nearly 18% in second quarter following China factory shutdown

Tesla delivered 254,695 electric vehicles globally in the second quarter, a nearly 18% drop from the previous period as supply chain constraints, China’s…

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Tesla delivered 254,695 electric vehicles globally in the second quarter, a nearly 18% drop from the previous period as supply chain constraints, China’s extended COVID-19 lockdown and challenges around opening factories in Berlin and Austin took their toll on the company.

This is the first time in two years that Tesla deliveries, which were 310,048 in the first period this year, have fallen quarter over quarter. Tesla deliveries were up 26.5% from the second quarter last year.

The quarter-over-quarter reduction is in line with a broader supply chain problem in the industry. It also illustrates the importance of Tesla’s Shanghai factory to its business. Tesla shuttered its Shanghai factory multiple times in March due to rising COVID-19 cases that prompted a government shutdown.

Image Credits: Tesla/screenshot

The company said Saturday it produced 258,580 EVs, a 15% reduction from the previous quarter when it made 305,407 vehicles.

Like in other quarters over the past two years, most of the produced and delivered vehicles were Model 3 and Model Ys. Only 16,411 of the produced vehicles were the older Model S and Model X vehicles.

Tesla said in its released that June 2022 was the highest vehicle production month in Tesla’s history. Despite that milestone, the EV maker as well as other companies in the industry, have struggled to keep apace with demand as supply chain problems persist.

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International

If You’re A Saudi Cocaine-User, Move To Uruguay

If You’re A Saudi Cocaine-User, Move To Uruguay

According to the latest edition of the United Nations World Drug Report, 284 million people…

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If You're A Saudi Cocaine-User, Move To Uruguay

According to the latest edition of the United Nations World Drug Report, 284 million people used illegal drugs in the last year, while around 21 million of them used cocaine.

The use of the drug has risen in the past decade, according to the report, but slowed somewhat in the Covid-19 pandemic. However, as Statista's Katharina Buchholz details below, with global cocaine production reaching new highs, cocaine supply chains to Europe have been diversifying, which is driving prices down and pushing quality up, potentially increasing the level of harm caused by use of the drug in the region.

You will find more infographics at Statista

In the United Kingdom, for example, cocaine prices fell from the equivalent of $178 to $103 between 2019 and 2020. The country continues to have a high cocaine retail street price in a global comparison, however, with prices lower in most European countries.

In developed economies outside of Europe, a higher premium is usually charged for cocaine, like in Hong Kong ($145 per gram), Japan ($188 per gram), Israel ($205 per gram) or Australia ($242 per gram). For the United States, no 2020 numbers were reported, but in 2019, the price for a gram of cocaine stood at $200 per gram.

Prices were even higher in Arab countries, which have strict laws forbidding drug use and trade.

A gram of cocaine can be found for a fraction of its price on the Persian Gulf in some parts of Europe, such as in the Netherlands and Portugal where UNODC states it has a retail street price of $58 and $38 per gram, respectively. The later country has recently radically decriminalized the use of even class A drugs.

Uruguay, one of the few Latin American countries for which data was available, came in at the very bottom of the list.

Cocaine is expensive in the only African country on the list, Algeria. India was included in the report for the first time this year, with the price of cocaine set at an average $67 per gram. While this is rather low by international standards, attainability is likely lower than in Europe due to the differences in purchasing power in the country.

Tyler Durden Sat, 07/02/2022 - 07:35

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