WHOChief,CPIandthefateofDiprotodons

Asian stock markets are in red in the opening trade today. The Hang Seng is trading down by 1.7%, the Nikkei is also down close to 1%, and the Dow Jones closed slightly in green yesterday with a 10 point gain. The reason attributed for the slide and the slight risk on by market watchers is around renewed Sino US tensions and the second coming of restrictions on economic activity in the US in the wake of a surge in virus cases. The Sino US tensions pertained to the US comments on the issue of the South China sea where it rejected the Chinese claims on the offshore resources in the area.

The comments by the WHO Chief have also not helped the cause. In a pretty candid reflection on the fate of the virus and public response he said yesterday “If basics are not followed, the only way this pandemic is going to go, it is going to get worse and worse and worse.”

Talking about threats and responses to those threats, we now know that evolution plays a very important role in developing our responses to any fear/risk/threat. The onslaught of this virus was so sudden, the pace with which it pervaded the entire world was so quick that maybe we are still struggling to develop an appropriate response at both an individual and institutional level. Constant denial of its existence by some governments is a case in point. Maybe the more time we are exposed to it, the better we will become in responding to it.

In the well-known book Sapiens, author Yuval Harari introduces us to the concept of risk exposure as one of the most important tools for survival. He narrates the story of an extinct species called Diprotodon. It was one of the biggest marsupials ever to walk the face of the earth and native to Australia. Harari writes that Homo sapiens reached Australia some 45,000 years ago in their rickety boats and were responsible for the extinction of many species including Diprotodons in the ensuing millennia, which had been there for more than a million years. The reason for such complete victory over these much bigger and larger animals was that these animals were unaware of the risks which the frail looking two legged ape presented. Unaware of its existence they had not developed an evolutionary response to the threat posed by the humans. Big animals living in Africa having survived long periods with humans had developed instincts to avoid them. The suddenness with which Corona engulfed the world can be thought of as similar to Homo sapiens taking control of the Australian land mass. It is important to be cautious now so that we don’t meet the same fate as Diprotodons.

In the domestic markets, the major news item was the release of the CPI numbers. The headline number was higher than the expectation at  6.09% for the month of June. The government had not released the inflation data in the month of April and June owning to data collection issues during the lockdown. As the number overshoots the RBI mandate of 6% on the upper side, the primary impact can be seen on the expectations of the rate cut during the next policy meeting due in August.  The yields on the benchmark 10 year bond have moved up by 2 bps in the opening trade today.