Fed policy, auto earnings in focus: Five numbers to track this week
Premium- From the US monetary policy update to fiscal deficit data to be released by the Indian government, here are the important announcements due this week
NEW DELHI : Every Monday, Mint’s Plain Facts section features the key figures you need to keep an eye on during the week. The US Fed’s monetary policy announcement this week is perhaps the single most important economic signal to watch out for. The fine print of the announcement will be carefully read by central banks and markets worldwide. In India, the earnings and projections of three major auto firms and core sector output will also be tracked closely. Here are the five big numbers to track:
1. Fiscal math
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India's last Union budget saw the fiscal deficit target for 2020-21 revised to a whopping 9.5% of gross domestic product (GDP). The shock of the pandemic was expected to widen the deficit. Anticipating that the markets would forgive any and all fiscal slippages this year, the Centre used the elbow room to pay some of the unpaid bills of the past, such as the outstanding payments to the Food Corp. of India (FCI).
The payments for the unpaid food subsidy bill that the government owed FCI alone accounted for 41% of the rise in government expenditure in FY21. Till February, the Union fiscal deficit was 76% of the revised estimates. This is expected to rise sharply when the March numbers are released on Friday by the Controller General of Accounts. This means when the data comes out, the fiscal deficit figure will be much closer to reality than it has been in recent years.
2. FOMC meeting
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The Federal Open Market Committee (FOMC), which sets the monetary policy in the US, is due to meet on Tuesday and Wednesday. The US Fed is expected to maintain its easy money policy even though the US economy is roaring back to life, with declining unemployment and rising mobility, as vaccinations pick up pace.
The heating up of the US economy has also pushed inflation up to 2.6% as of March, well above the 2% target. Fed officials have signalled that they would look past temporary spikes in inflation, but that has not stopped bond markets from turning bearish. Ten-year treasury yields are up since February, despite a correction last week. The FOMC will aim to calm the jittery bond markets and, if it succeeds, it will likely have ripple effects across financial markets, globally. In its February meeting, the FOMC said the economic outlook remained uncertain. Fed chair Jerome Powell stressed the need for support “for as long as it takes" in March, setting the tone for the FOMC meet now.
3. US GDP
The US will release the first estimates for the March quarter GDP on Thursday. Emerging markets (EMs) such as India will keenly await the numbers as a faster, vaccination-led recovery appears to be putting the West back in favour for investors. The Atlanta Fed’s GDPNow model pegs an 8.3% bump in GDP, likely on the back of a generous federal stimulus package. This would be a much sharper rebound compared to the 4.3% growth in the previous quarter.
Strong growth for the US could attract greater fund flows to the US market, strengthen the dollar rally, and weaken EM currencies. But for firms with global linkages, such as exporters and IT firms, this would be welcome news, providing a secure revenue stream at a time when the domestic economy is likely to underperform because of the deadly second wave.
4. Auto earnings
Automobile compnies saw some of the biggest revenue shocks during the first lockdown in 2020 as sales collapsed. Three major firms in the sector are set to release their Q4 results this week under the shadow of similar circumstances again: Maruti Suzuki on Tuesday, and Mahindra Automotive and Bajaj Auto on Thursday.
Industry data suggests increased domestic sales in January-March for most major segments: passenger vehicles, commercial vehicles and two-wheelers. This is on the back of a low base, but bodes well for the March quarter earnings. What will matter more is the guidance the management of these firms offer on what to expect April onward, as production and showroom sales are affected by new local restrictions. Stock markets are pricing in a significant hit to the sector with the BSE auto index underperforming the broader market since March.
5. Core growth
Core sector output measures the combined growth in eight key infrastructure sectors: coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity. These sectors have over 40% weight in the index of industrial production (IIP), a crucial indicator of economic health. The core output data for March will be released on Friday.
Core sector growth has been in limbo since 2020’s lockdown shock. In February, the index declined 4.6% on a year-on-year basis, proving the 1% rise in January to be a blip. For the first time since April 2020, all eight sectors saw a downturn, led by refinery products (-10.9%) and cement (-5.5%). By late March, the economy was staring at another bleak summer with the surging second wave, especially in Maharashtra. This could lead to further contraction in output, weighed down by a tightening labour market and reduced demand. Rising commodity prices had already been putting pressure on these sectors.
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