India Heads To The Polls In World's Biggest Election

Economic

Political

Summary:

Polls opened Friday for the first and largest phase of India’s marathon general election, kicking off a vote in which Prime Minister Narendra Modi is seeking to win a rare third consecutive term.

About 969 million people are eligible to vote in the biggest election in human history, with polling taking place in seven phases over the next six weeks in the world’s most populous country.

The nationwide vote is considered among the most consequential in decades as Modi’s powerful right-wing Bharatiya Janata Party (BJP) aims for an outright majority and a mandate to widen its development and Hindu-nationalist policies established during its 10-year rule.

Those policies have transformed India economically and culturally, and BJP rule has been defined by a pull away from India’s secular foundation, toward Hindu majoritarianism.

Under Modi’s leadership, the country of 1.4 billion people has become the world’s fastest-growing major economy and a modern global power.

The 73-year-old’s transformational rule has been marked by infrastructure and welfare projects, fervent Hindu nationalism, rapid economic expansion and an increasing presence on the world stage.

But it has also been plagued by soaring youth unemployment and inequality, particularly in rural areas, and critics say Modi has driven religious polarization, which has included rising Islamophobia and persecution of the country’s 230 million Muslims.

Still, Modi’s popularity is unparalleled for a two-term incumbent and his rallies have consistently drawn tens of thousands of supporters.

Development and democracy

The BJP’s campaign manifesto centers on job creation, anti-poverty programs such as expanding food handouts and housing schemes, and national development with particular focus on women, the poor, farmers and young people.

Modi wants to turn the country into a global manufacturing hub, continue its massive infrastructure transformation, and achieve energy independence by 2047.

On the world stage, Modi wants India to become a permanent member of the United Nations Security Council, will push to bid for the 2036 Summer Olympics and aims to land an astronaut on the moon.

The BJP has also pledged to implement a uniform civil code, which would replace a sprawl of religious and customary laws with a standard rule that everyone, regardless of faith, would be required to follow. The BJP says it will protect the rights of women, though some communities say it will interfere with their freedom of religion and customs.

Challenging the BJP is India’s main opposition party, the Indian National Congress, and its newly formed INDIA alliance of parties.

But the once-formidable force in Indian politics has been languishing since Modi rose to power a decade ago. And the INDIA alliance is already starting to show cracks, with defections and infighting.

The opposition bloc is banking on a unified approach to counter the BJP’s dominance over the past decade.

The Congress party’s campaign is promising “freedom from fear” and vowing to protect democratic values such as freedom of speech, expression and religious belief espoused in the constitution.

Its manifesto also emphasizes justice, equity and welfare, promising recognition of civil unions between LGBTQ+ couples, protection of religious minorities, and safety and empowerment of women, among other pledges such as apprenticeship for young graduates.

It speaks directly to critiques from rights groups that the BJP is eroding democratic values, by promising to restore freedom of the media, to strengthen the autonomy of the Election Commission and other state agencies, and review laws passed by the BJP “without proper parliamentary scrutiny and debate.”

India’s Election Commission has imposed restrictions on media, including CNN, that limits the publication of reporting and analysis in the run-up to and during polling days.

Who is voting?

Voters are casting their ballots for 543 seats in the lower house of parliament, or Lok Sabha, with a further two seats nominated by the country’s president.

The party with the majority will form a government and appoint one of its winning candidates as prime minister.

On Friday, voters from constituencies in 21 states and union territories across India will cast their ballots electronically. Some states are so big that voting is spread out over the seven phases, while others vote on one day.

Among the most politically important states is Uttar Pradesh, home to 240 million people who vote in all seven phases. India’s largest state is a crucial battleground with 80 seats in the Lok Sabha up for grabs.

Also voting Friday is the southern state of Tamil Nadu and its capital Chennai, where the regional Dravida Munnetra Kazhagam party and INDIA alliance will be vying to prevent the BJP from making inroads into a corner of India it has historically struggled to penetrate.

West Bengal, a state of 102 million people and 42 Lok Sabha seats, will also vote in all seven phases, starting Friday. The BJP has struggled to crack the state, which has been long ruled by the All India Trinamool Congress and headed by political heavyweight Chief Minister Mamata Banerjee.

The remote Indian Ocean archipelago of the Andaman and Nicobar Islands, home to indigenous tribes from among the world’s most isolated communities, will also vote Friday.

So too will the northeast states, including Mizoram, Meghalaya and Nagaland on the border with Myanmar, as well as parts of Manipur, which has been gripped by ethnic violence over the past year.

Source：CNN

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Remarks of Officials

New York Fed President John Williams said in an interview on April 18 as follows.

I think we've got interest rates in a place that is moving us gradually to our goals, so I definitely don't feel urgency to cut interest rates. The data will inform our decisions.

The current restrictive monetary policy has not had a major impact on the economy. The disinflation process is a bit "bumpy" at the moment, but inflation overall is gradually moving down. The Fed's 2% inflation goal is the right objective, as low inflation is the cornerstone of economic prosperity.

Raising interest rates is not my baseline expectation, but it's possible if the economic data warrant it.

Atlanta Fed President Raphael Bostic said on the same day that if inflation does not move toward the 2% target as expected, Fed officials need to consider further interest rate increases.

If our current policy level is not restrictive enough to continuously bring inflation down, we should be open to a rate hike. If inflation falls faster than we now expect, perhaps we will cut rates earlier so as to make sure policy does not get overly restrictive. The current risks to the economic outlook are broadly balanced. Interest rates are not expected to be cut before the end of this year. The Fed is willing to remain patient.

Meanwhile, Minneapolis Fed President Neel Kashkari said the Fed needs to get more evidence that inflation is falling before cutting rates, possibly delaying a rate cut after 2024. The Fed needs to continue to maintain restrictive interest rate levels until it is convinced that inflation is moving down back to 2% on a sustained basis.

Hawkish remarks by these Fed officials have all dampened expectations for a rate cut. They indicated that there is no urgency to cut rates and are open to a rate hike.

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Cohen

Economic

Commodity

Gold’s record-breaking rally is confounding the world’s top commodity analysts and fund managers as the precious metal defies traditional price drivers to make history this year.

Prices have surged 20 per cent over the past two months to all-time highs above $US2400 ($3754) an ounce despite elevated real bond yields, which account for inflation, and a robust US dollar. Both of those have historically worked against gold’s favour.

Instead, analysts have attributed gold’s returns to accelerated central bank purchasing, particularly in emerging markets, and strong retail demand in China and the US. Rising geopolitical risks in Europe and the Middle East have only added to gold’s appeal.

RBC Capital Markets acknowledged that while those are relevant factors for gold, they have rarely been overriding determinants of its price. The broker’s gold models rely more heavily on macroeconomic drivers such as rates and the US dollar.

“By most of those measures, gold is actually quite overvalued, especially when looking at single factors,” said Helima Croft, head of global commodity strategy at RBC. “Perhaps this is a signal to readjust our expectations? Or perhaps the gravity indicated by macro drivers is just not important right now?”

Goldman Sachs agreed that the breakdown in gold’s correlations means a new framework is needed. It suggested gold as a barometer for “fear and wealth”.

The broker is far more bullish than RBC, which believes the market hasn’t fully recognised the metal’s vulnerabilities, and predicts prices will average $US2248 an ounce in 2024.

Oxford Economics thought it was already bullish on gold, but it too has seen its forecasts thumped. It warned that prices are now vulnerable to a pullback short-term, and subsequently closed its long position that it opened in October last year.

Oxford believes the rally has been supported by an increase in investment managers taking long positions, which have spiked over the last month to the highest since the pandemic broke out in 2020.

“We think that the rally has run out of steam among speculators who won’t continue buying gold at the same pace,” said economist Diego Cacciapuoti.

In contrast, Goldman last week upgraded its year-end price forecast to $US2700 an ounce, from $US2300 an ounce previously. It believes that US Federal Reserve rate cuts arriving later this year will likely stem the outflows being suffered by exchange-traded funds that buy physical gold.

Indeed, ETFs have shed around 900 tonnes of physical gold since holdings peaked in the fourth quarter of 2020, Citi noted. ETF providers buy and store gold to match demand for their securities.

But any outflows appear to have been absorbed by central banks, whose gold purchases hit their second-highest level in 2023, buying around 1037 tonnes collectively.

And Citi expects that trend to continue, projecting more than 1000 tonnes of central bank purchases this year, which would be the third-highest volume since the Nixon shock in 1971, the last time foreign governments could exchange their dollars for gold.

Citi this week upgraded its forecasts to its “bull case scenario”, triggering a 6.8 per cent increase to its 2024 projection to $US2350 an ounce, and an “admittedly massive” 40 per cent lift in 2025 to $US2875 an ounce.

The broker believes that an eventual interest rate cutting cycle by the Fed and a rally in Treasuries could be the kicker to boost gold to $US3000 an ounce in the next 12 months.

Laggards

But while analysts scramble to retool their forecasts, investors are also wondering when the surging gold price will flow through to the valuations of gold producers.

Indeed, the VanEck Gold Miners ETF has underperformed the gold price by around 30 per cent over the past three years. But UBS noted this week that the ETF has begun to close the gap.

The broker argued that if gold holds at current levels, it amounts to 20 per cent upside to 2024-25 earnings for gold miners under its coverage.

While UBS acknowledged that wet weather in Western Australia will keep pressure on FY24 guidance and costs, that wouldn’t be enough to take the shine off the surging gold price.

“While recent WA rainfall is the latest production challenge, making meeting the bottom end of guidance a beat, in this price environment there are few bad gold stocks to hold,” said UBS analyst Levi Spry.

Wilsons Advisory agreed that the sector’s leverage to the gold price will outweigh the impacts of cost inflation in the medium term – a dynamic which is not yet adequately reflected in consensus earnings.

Source：Financial Review

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Daily News

[Quick Facts]

1. Gold quickly rallies by $30 on rising risk aversion.

2. Fed to cut rates in September and maybe once more this year.

3. Fed's Bostic is open to a rate hike if inflation progress stalls.

4. Japan's nationwide core CPI slowed to 2.6% in March.

5. Williams indicates no urgency to cut rates and is open to a rate hike if needed.

6. U.S. home sales fell in March while prices rose.

7. Villeroy expects a rate cut in June, barring surprises, and is open to more rate cuts.

[News Details]

Gold quickly rallies by $30 on rising risk aversion

Explosions were heard in Isfahan in central Iran, As-Suwayda Governorate in southern Syria, the Baghdad area, and Babil Governorate of Iraq in early Friday morning, according to a report from the Jerusalem Post. The market is worried that this is an attack by Israel.

As it stands, the conflict between Israel and Iran is more likely to escalate than de-escalate. It cannot be ruled out that Israel may launch a devastating attack on Iran this weekend, perhaps attacking its oil infrastructure.

Gold quickly rallied by nearly $30 as a result and once hit $2,304.69 per ounce. U.S. crude oil rose by more than $2 or about 3.22% to $85.15 per barrel.

Fed to cut rates in September and maybe once more this year

A majority of the 100 economists polled by Reuters (54 out of 100) predicted the first decrease in the federal funds rate to happen in September, pushing that rate to the 5.00%-5.25% range. 26 economists predicted the first rate cut in July, and only four expected a cut in June. Two-thirds of respondents to last month's survey (72 of 108) expected the first rate cut in June.

Most thought the Fed would wait until September to cut rates. Half of the participants, 50 of 100, saw two cuts this year, 34 said more than two, 12 saw only one reduction and four said none.

Reuters polls always show lower expectations for the Fed's rate cuts than the market, but the latest Reuters poll shared expectations with the market after last week's stronger-than-expected inflation data and robust retail sales data, as well as Powell's hawkish remarks.

Financial markets had earlier this year expected the Fed to start cutting rates in March and forecast six cuts this year, but they now expect the first rate cut to happen in September, followed by another in November or December.

Fed's Bostic is open to a rate hike if inflation progress stalls

Atlanta Fed President Raphael Bostic said on Thursday that he still believes inflation is moving toward the central bank's 2% target, but the process may be slower than expected. If inflation progress stalls or even begins to move in the opposite direction from our target, I think we will have no choice but to respond to that. I would be open to raising rates if our current policy levels are not restrictive enough to reach our target or fulfill our mandate. Should inflation fall faster than expected, an earlier rate cut is possible to ensure that policy is not too restrictive.

Progress toward the Fed's 2% inflation target has slowed in recent months. Fed officials generally think that means they may keep rates at current levels for longer, without urgency to cut them. Bostic has embraced this view. He now expects a rate cut in late 2024, rather than the two cuts that he previously projected when inflation was falling fast.

Japan's nationwide core CPI slowed to 2.6% in March

Data released by the Japanese government on Friday showed that the nationwide CPI rose by 2.7% from a year earlier as expected, due to a moderate rise in food prices, while the nationwide core CPI rose by 2.6% year-on-year.

Meanwhile, a gauge of price gains that excludes fresh food and energy costs and is closely watched by the Bank of Japan (BOJ) moderated to 2.9% after increasing 3.2% in February. It was the first time since November 2022 that the index fell below 3%.

Markets are looking for clues as to when the BOJ will raise rates again. While Japanese companies offered their biggest wage hikes in 33 years this year, inflation-adjusted real wages have continued to fall for nearly two years. Sluggish domestic demand may keep inflation below the 2% target later this year, complicating the BOJ's path.

Williams indicates no urgency to cut rates and is open to a rate hike if needed

New York Fed President John Williams said on Thursday that the current monetary policy "is in a good place", helping the Federal Reserve gradually approach its goal, so there is no "urgency" to cut interest rates. The Fed may maintain high interest rates unchanged for a longer period than expected. He says raising rates is not his baseline scenario, but it is possible if data warrant.

U.S. home sales fell in March while prices rose

U.S. home sales fell in March as rising interest rates and higher prices kept buyers off the market. Total existing home sales in March fell by 4.3% to a seasonally adjusted annual rate of 4.19 million, the National Association of Realtors (NAR) reported on Thursday. Home resales, which account for a large portion of U.S. housing sales, declined 3.7% on a year-on-year basis in March.

Though rebounding from cyclical lows, home sales are stuck because interest rates have not made any major moves. Despite improved supply, the median existing-home price rose 4.8% from a year earlier to $393,500 in March, which was the highest home price ever recorded in March.

Villeroy expects a rate cut in June, barring surprises, and is open to more rate cuts

We should, barring major shocks or surprises, decide on a first rate cut at our next meeting, and be open to more rate cuts in future meetings. European Central Bank Governing Council member François Villeroy said. We are increasingly confident in the disinflation path in the euro area.

[Focus of the Day]

UTC+8 14:00 U.K. Retail Sales MoM (Mar)

UTC+8 22:30 Chicago Fed President Goolsbee Speaks

UTC+8 00:30 Next Day: Bank of England MPC Member Mann Speaks

UTC+8 03:30 Next Day: Bank of Canada Governor Macklem Holds a Briefing with Journalists from the Sidelines of the IMF Meeting

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Owen Li

Cryptocurrency

Bitcoin (BTC) is increasingly serving as a critical channel for cross-border financial flows amid global financial instability, according to a new report by the International Monetary Fund (IMF).

The report — called “A Primer on Bitcoin Cross-Border Flows” — sheds light on how the decentralized nature of Bitcoin is being leveraged to bypass traditional banking systems, especially in regions experiencing economic distress or strict capital controls.

Necessary financial tool

According to the IMF, residents of countries with restrictive financial regulations are turning to Bitcoin to move capital across borders more freely.

The report highlighted significant transaction volumes originating from countries like Argentina and Venezuela, where citizens face hyperinflation and stringent financial controls.

In these regions, Bitcoin has become a necessary financial tool for preserving wealth and accessing global markets rather than just a speculative investment.

One of the report's authors, Eugenio Cerutti, wrote:

“Bitcoin transactions provide a way for individuals in high-inflation countries to stabilize their savings and participate in global commerce on terms that aren't possible through their local currencies.”

However, the IMF report also cautioned against the potential risks associated with the widespread use of Bitcoin for cross-border flows.

The lack of oversight and the anonymity provided by cryptocurrencies can complicate the efforts of regulators to monitor and control financial transactions to prevent illicit activities such as money laundering.

On-chain volume

The study reviewed both on-chain and off-chain transaction data to explore the trends behind Bitcoin's use across borders. It found that Bitcoin transactions are not only substantial in volume but also exhibit unique characteristics compared to traditional capital flows.

Unlike typical foreign investments that are sensitive to economic indicators like currency strength, Bitcoin flows show a higher correlation with cryptocurrency-specific sentiments, such as market volatility and user sentiment indexes — like the Fear and Greed Index.

The analysis also pointed out that on-chain Bitcoin transactions, which are recorded on the blockchain and offer more security, tend to be larger than off-chain transactions. This indicates that the robust security features of blockchain technology often protect larger financial stakes.

The IMF called for international cooperation and regulatory frameworks that encompass the unique aspects of digital assets. Such measures would help mitigate the risks while harnessing the benefits of digital currencies, especially as tools for economic freedom in countries with restrictive financial environments.

Source: CryptoSlate

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Samantha Luan

Economic

Central Bank

Beijing’s currency defense against the dollar risks coming undone by the side effect it is having against the other major currencies in China’s trading orbit.

The official CFETS RMB Index, which measures the yuan’s performance versus 24 peers, has climbed 2.7% since end-December and rallied to the highest in a year this week. The strength is at odds with China’s flagging recovery and threatens to erode competitiveness of its exports, especially at a time when other Asian currencies are depreciating under the weight of a resurgent dollar.

As a stronger fixing fueled the trade-weighted appreciation, the authorities’ recent moves to weaken the reference rate suggested they are switching tack to allow for more currency flexibility. A looser hold on the yuan would also be in line with the People’s Bank of China’s easy policy stance, although such a strategy risks fueling capital outflows and undermining consumer confidence. PBOC's Easier Grip on Yuan May Stem From Trade-Weighted Strength_1

PBOC's Easier Grip on Yuan May Stem From Trade-Weighted Strength_1

“They could let the dollar-yuan fixing slowly grind higher to contain the CFETS index strength,” said Lemon Zhang, a strategist at Barclays Bank Plc. “The central bank will tolerate higher foreign-exchange volatility if the dollar index’s strength continues beyond the third quarter.”

The PBOC first set the yuan’s reference rate, or fixing, against the dollar at a weaker-than-expected level on March 22, causing the currency to drop the most in more than two months onshore. It repeated the move on Tuesday, leading more investors to believe that policymakers are recalibrating the currency strategy.

The fixing moves were likely a policy reset that “should alleviate recent yuan appreciation against major trading partners amid resilient dollar strength, and to downplay the psychological level of 7.10,” Goldman Sachs Group Inc. strategists led by Danny Suwanapruti wrote in a note.

Down less than 2% versus the greenback so far this year, the yuan’s decline is smaller than most of its Asian peers, thanks to a steady fixing that has stayed close to 7.10.

As a result, the Chinese currency recently hit a record high versus the yen and is near the strongest level in about a year against the Korean won.

“The appreciating yuan is counteracting with the PBOC’s easy policy stance,” said Alvin Tan, head of Asian currency strategy at Royal Bank of Canada. “To end the policy contradiction, the PBOC needs to accommodate US dollar strength.”

No Free Fall

To some observers, the PBOC remains capable of engineering yuan depreciation gradual and steady enough to better reflect a weaker economy and yet avoid market panic. It has a variety of tools to manage the process, ranging from the currency’s 2% onshore trading band to hiking its funding costs offshore.

A strong dollar may continue to dominate until the fourth quarter and the PBOC will keep using the fixing to anchor currency expectations and prevent excess volatility, said Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corp. The central bank will likely “tweak once in a while when it deems necessary,” he added. PBOC's Easier Grip on Yuan May Stem From Trade-Weighted Strength_2

PBOC's Easier Grip on Yuan May Stem From Trade-Weighted Strength_2

Still, the PBOC’s constant efforts to defend the yuan against the dollar at certain levels may backfire.

“There’s no point to keep setting such a firm line,” said Becky Liu, head of Greater China macro strategy at Standard Chartered Bank. “If they do so, the cost of currency management will go higher and higher, and foreign exchange rate loses its role of auto-stabilizer for overall financing conditions.”

Source:Bloomberg

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Economic

Forex

Inflation and the Bank of Japan

On Friday, inflation numbers from Japan could impact buyer demand for the USD/JPY. Economists forecast the core annual rate of inflation to ease from 2.8% to 2.7% in March. Moreover, economists expect the annual inflation rate to soften from 2.8% to 2.7%.

Softer inflation numbers could align with recent forward guidance from the Bank of Japan on the interest rate path. On Thursday, Bank of Japan board member Asahi Noguchi favored a patient approach to further monetary policy tightening. Noguchi said the Bank of Japan would raise interest rates more slowly than its peers lifted rates during rate hike cycles.

However, the Bank of Japan must also grapple with the effects of a weaker Japanese Yen on the economy. A weaker Japanese Yen leads to higher import costs, impacting household spending. The Bank of Japan expects recent wage increases to fuel household spending and demand-driven inflation. Higher import costs would offset the effects of wage growth.

Trade data for March signaled a weakening demand environment, with imports falling by 4.9% year-on-year.

US Economic Calendar: Fed Speakers in Focus

On Friday, investors should monitor FOMC member commentary. Fed Chair Powell and FOMC members poured cold water on investor expectations of a June Fed rate cut.

US labor market conditions remain tight, with consumer spending continuing to drive the US economy.

Support for a more cautious approach to cutting interest rates could further shift investor bets on 2024 Fed rate cuts. FOMC member Austan Goolsbee is on the calendar to speak. The Chicago Fed President recently highlighted that the housing services sector is the biggest challenge to bringing inflation to the 2% target.

The CME FedWatch Tool reflects the effects of recent economic data and Fed speeches. According to the CME FedWatch Tool, the probability of a 25-basis point June rate cut fell from 20.1% (April 11) to 16.2% (April 18). Moreover, the chances of the Fed holding interest rates at 5.5% in September increased from 31.0% to 35.6% over the same period.

While the Fed remains the focal point, news updates from the Middle East also need monitoring.

Short-term Forecast

Near-term trends for the USD/JPY will likely hinge on inflation numbers from Japan and Fed commentary. Softer-than-expected inflation numbers and hawkish Fed chatter could further tilt monetary policy toward the US dollar.