Global Markets: India Gains Ground, and Saudi Arabia Introduces Reforms

1

Hindenburg Research has accused the head of India's market regulator, Madhabi Puri Buch, of failing to thoroughly investigate allegations of manipulation and fraud against the Adani Group due to a conflict of interest. Buch denied these allegations, calling them baseless and stating that she had disclosed all relevant information to the regulators as required. Hindenburg's latest report has further escalated tensions with Indian regulators, while the Adani Group denies any involvement in the accusations and reiterates the transparency of its offshore shareholding structure.

Analysis:

Impact on FX:Potential weakening of INR if the regulatory environment is perceived as compromised.

FX Pair:USD/INR, EUR/INR

Impact on Shares:Negative impact on Indian financial markets and Adani Group stocks.

Companies:Adani Enterprises (ADANIENT.NS), Adani Ports (ADANIPORTS.NS)

2

Chinese property developers Logan Group and KWG Group have secured private loans to refinance over $1 billion in debt, with Hong Kongs luxury real estate project “The Waterfront” as collateral. The loan was arranged by JPMorgan Chase and supported by several financial institutions, including Deutsche Bank and Pacific Investment Management Company (Pimco). This financing plan provides a path forward for Logan Group's $8 billion offshore debt restructuring. The new loan is sized at $1.05 billion, with an annual yield of 13%, a term of 30 months, and two six-month extension options.

Analysis:

Impact on FX:Stable for CNY, but potential risk if property market tensions escalate.

FX Pair:USD/CNY, EUR/CNY

Impact on Shares:Potential stabilization for Logan Group and KWG Group stocks.

Companies:Logan Group (3380.HK), KWG Group (1813.HK)

3

Indonesian President-elect Prabowo Subianto has pledged to continue and complete the construction of the new capital, Nusantara, easing concerns that he might abandon his predecessor's multi-billion-dollar project.

Analysis:

Impact on FX:Potential strengthening of IDR if investor confidence increases.

FX Pair:USD/IDR, EUR/IDR

Impact on Shares:Positive impact on Indonesian construction and infrastructure sectors.

Companies:Wijaya Karya (WIKA.JK), PT PP (PTPP.JK)

4

China is rapidly expanding its battery storage systems to cope with the rapid growth of wind and solar power generation. However, these storage systems have a low utilization rate, being used only once every two days on average, with an idle rate as high as 91%. The main issue is the lack of incentives; most storage systems are built due to local mandates but lack motivation for use. To fully utilize these storage systems, China needs further power market reforms, particularly through dynamic electricity pricing to incentivize more frequent participation in electricity trading.

Analysis:

Impact on FX:Potential stabilization or strengthening of CNY if energy reforms succeed.

FX Pair:USD/CNY, EUR/CNY

Impact on Shares:Positive impact on Chinese renewable energy and battery storage companies.

Companies:BYD (002594.SZ), CATL (300750.SZ)

5

Gold prices stabilized ahead of the U.S. inflation data release this week, as traders focus on whether the data will strengthen expectations of the Fed's impending shift to monetary easing. Gold is currently trading near $2,430 per ounce, after dropping 0.5% as the market prepares for the Consumer Price Index (CPI) report. If inflation data shows only a small increase, it may not hinder the Fed's expected rate cut next month. Additionally, gold prices have risen about 18% this year, supported by central bank purchases, strong Chinese demand, and geopolitical conflicts.

Analysis:

Impact on FX:Gold price movements could impact currencies of gold-exporting countries.

FX Pair:USD/AUD, USD/CAD

Impact on Shares:Positive impact on gold mining companies.

Companies:Newmont Corporation (NEM), Barrick Gold (GOLD)

6

Despite the cost-of-living crisis, the UK is seeing an increasing number of people dissatisfied with their marriages, yet the divorce rate has hit its lowest level in over 50 years. High inflation has reduced household incomes, and soaring housing prices and rents have made the economic cost of separation or divorce higher, causing many couples to delay breaking up. Although legal reforms have simplified the divorce process, economic pressure still dominates this trend, with many unable to afford the cost of living alone, leading them to stay in unhappy marriages.

Analysis:

Impact on FX:Potential weakening of GBP due to economic strain.

FX Pair:GBP/USD, EUR/GBP

Impact on Shares:Possible negative impact on UK housing and consumer sectors.

Companies:Barratt Developments (BDEV.L), Taylor Wimpey (TW.L)

7

This weeks U.S. inflation data is expected to show a slight increase in July, but it is unlikely to prevent the Fed from cutting rates next month. The Consumer Price Index (CPI) is expected to rise 0.2% from June, indicating an acceleration, but the annual growth rate remains at its lowest level since early 2021. As price pressures ease, the Fed may shift to cutting rates, while paying closer attention to signs of a slowing labor market.

Analysis:

Impact on FX:Potential weakening of USD if rate cut expectations strengthen.

FX Pair:EUR/USD, USD/JPY

Impact on Shares:Potential positive impact on U.S. stocks.

Companies:General Market Indices (S&P 500, NASDAQ)

8

Zimbabwe is launching a new currency, the ZiG (Zimbabwe Gold), in April 2024 to replace the Zimbabwean dollar. This is Zimbabwe's sixth attempt to introduce a new currency since experiencing 5000 billion percent inflation in 2008. The ZiG is backed by gold and foreign exchange reserves, aiming to restore public confidence in the national currency. However, despite the government's mandate that some taxes must be paid in ZiG and fines for businesses refusing to accept ZiG payments, public acceptance of ZiG remains uncertain. The proportion of dollar transactions has dropped from 85% when ZiG was introduced to about 70%. The government plans to fully de-dollarize by 2026.

Analysis:

Impact on FX:Potential volatility in ZWL as the transition occurs.

FX Pair:USD/ZWL, EUR/ZWL

Impact on Shares:Potential mixed impact on Zimbabwean businesses depending on acceptance of the new currency.

Companies:N/A

9

The Reserve Bank of New Zealand faces a critical policy decision this week, with economists and investors divided over whether it will start cutting interest rates. While most economists expect the Official Cash Rate to remain at 5.5%, some believe the central bank may begin a rate-cutting cycle. New Zealand's economy shows signs of entering its third recession, with inflation cooling more than expected. However, domestic prices remain stubbornly high, and an immediate rate cut could significantly contrast with previous policy stances. Investors expect the Reserve Bank of New Zealand to cut rates by up to 75 basis points this year, with further cuts of up to 200 basis points possible by July 2025.

Analysis:

Impact on FX:Potential weakening of NZD if rate cuts are announced.

FX Pair:NZD/USD, EUR/NZD

Impact on Shares:Mixed impact on New Zealand financial markets.

Companies:N/A

10

UK fintech company Wise plans to resume offering overseas remittance services to new users in India, aiming to capture a share of the country's $32 billion annual foreign exchange remittance market. Previously, Wise paused new user registrations to upgrade its infrastructure and obtain authorization from the Reserve Bank of India (RBI), allowing customers to remit more funds. Despite India's strict capital controls and the dominance of banks in the market, Wise hopes to carve out a niche by offering fast, low-cost, and transparent services. India's cross-border remittance market is primarily dominated by ICICI Bank and State Bank of India.

Analysis:

Impact on FX:Potential strengthening of INR if remittance services boost inflows.

FX Pair:USD/INR, EUR/INR

Impact on Shares:Positive impact on Indian financial services sector.

Companies:ICICI Bank (ICICIBANK.NS), State Bank of India (SBIN.NS)

11

Former Bank of Japan board member Makoto Sakurai believes the central bank is unlikely to raise interest rates again this year, given recent market turmoil and the low likelihood of a rapid recovery in the Japanese economy. While the rate hike on July 31 raised interest rates to 0.25%, market backlash and poor communication by the central bank have raised concerns. Sakurai suggests that the Bank of Japan should wait for market stability and criticized current Governor Kazuo Ueda for failing to clearly communicate the central bank's commitment to maintaining an accommodative policy stance. This situation has led to market misinterpretations that the central bank would continue to raise rates significantly.

Analysis:

Impact on FX:Potential stabilization of JPY if market expectations are managed effectively.

FX Pair:USD/JPY, EUR/JPY

Impact on Shares:Mixed impact on Japanese financial markets.

Companies:N/A

12

Saudi Arabia has announced new commercial regulations aimed at increasing transparency and simplifying investment processes to attract more foreign capital and support economic diversification. The new law, which will take effect in early 2025, will eliminate the existing foreign investment licensing regime in favor of a simplified registration process and establish dedicated service centers to speed up the investment process. Saudi Arabia's goal is to attract over $100 billion in foreign direct investment (FDI) annually by 2030. These reforms are designed to ensure investor rights, including the protection of the rule of law, fair treatment, and free capital transfer. Currently, Saudi Arabia's FDI inflows are gradually increasing but have not yet reached the target level.

Analysis:

Impact on FX:Potential strengthening of SAR if foreign investment increases.

FX Pair:USD/SAR, EUR/SAR

Impact on Shares:Positive impact on Saudi Arabian financial markets.

Companies:Saudi Aramco (2222.SE)