Digitizationofeconomyandforcedchanges

The Dow Jones ended the previous night’s session in mild red, closing 0.3% down. The Nasdaq on the other hand closed up by 1%. The Nasdaq, which is a tech heavy index, has already surpassed its pre virus peak and is now running up unabated. Essentially the technology companies have been the biggest beneficiaries of the forced lifestyle changes which have been brought by the quarantined existence due to the virus. Even when things return to normal, the primary bet is that few of these changes will be reversed and will remain with us.

We have previously written about the structural changes which are happening in the economies around the world. One example is yesterday’s NAHB Housing Market data in the US which came in well above expectation for the month of August. The analysts can discern a prominent shift in demand to suburban properties as buyers look to seek out affordable housing in low density markets. This impact can be seen as a direct consequence of the digitization of the economy which has been brought about by the pandemic. This goes directly in the face of arguments which economists used to tout earlier that a few densely populated mega cities will be the engine of the economies, as such cities provide network effects leading to innovation and serendipity. The concept of reverse migration was an academic theory until some time back.

In the currency round up, the euro is trading 1.1890 against the dollar. The US dollar index is trading at 92.63. The pound sterling is trading around its 6 month high levels of 1.3130 as the Brexit negotiations enter their seventh round in Brussels today. The optimism might be on the back of the statement by the UK that they are hopeful of a trade deal with the EU by next month. But such statements of hope have been made multiple times in the past and provide little confidence. In the last round of negotiations, the EU had accused the UK of intransigence by not showing a willingness to break the deadlock. Whether that willingness will be in ample supply this time round is a matter of guesswork.

In other news, the election race is getting into its final laps with the DNC getting underway. It is understood that at some point the Sino US trade relations will start taking the limelight. The incumbent US President has made the “tough” stance as an important policy point. Amid the escalation, senior officials from the Whitehouse and China postponed trade talks which had been set up to discuss the “phase one” trade deal signed in January this year. The issues regarding sale of fighter jets to Taiwan, sale of Tiktok and 5G Tech are keeping the two sides engaged.

Domestically, the rupee opened stronger following the broad dollar weakness. It has traded in a narrow range for quite some time now. The real movement though is  visible in bonds. GS 5.79 2030 is currently trading at 5.99 which is the highest yield for the bond. The bond yields have been going right since the policy meeting which cautioned around inflation. The July inflation numbers also didn’t help the cause. As the rate cut probability dwindles, the lack of any announcement on measures like OMO’s have also hurt the market sentiment.