Crude prices to flatten, will not touch $90 soon: Macquarie

Indian economy will still have plenty of potential for growth in domestic demand in 2015. Recent concerns about the Reserve Bank of India (RBI) interest rate moves or delay in a cut in interest rates are a bit over blown at this point in time. I suspect the interest rate cut will come sooner rather than later.

Q: At long last we saw some upward correction in crude prices. It has been a one way down, that has given the Indian market a little more fillip since we are such big net importers of crude. What is your sense, if crude were to flatten out here India’s outperformance could be impacted?

A: It will be impacted. Crude is a very important import for the Indian economy and it is an important part of the cost base in terms of the trade balance and the current account deficit. However, at this point in time that is the best we are looking at is crude prices flattening out. I don’t suspect that there is any possibility at this point in time again to move back to USD 90-100 a barrel nor do I think we are probably heading down to that USD 60-65 a barrel.

I suspect the truth does lie in a flattening out, around the potentially USD 84 a barrel for crude and that means we may see some spark as a result of that tailwind from lower crude prices coming out of the Indian economy. However, the demand base outlook is still very positive.

Q: Overnight the US markets had a good run as well. It has been slow and steady but record highs nevertheless. How do you reckon the last part of the year will pan out, are we staring at a rally towards the end of 2014?

A: We are in the United States and it is very topical because next week is an important week for the US. It is thanksgiving week, very important period for retailers in United States. We also get a consumer confidence index reading. The only part of the week that is likely to show consumer confidence at a seven year high.

We may see some minor adjustment to Q3 growth numbers that came in at 3.5 percent but still we are going to have an economy that is growing well over 3 percent and finding momentum in that. So, we will see a good spending period in the thanksgiving holiday retail spending time and that will augur well for the Christmas, New Year period. So, what that is going to do is push the US ahead of its peers even further in relation to its growth momentum.

Q: Two quick and separate questions; there is enough of yen depreciation and looks like the ECB will take the euro that way. The dollar index at 87.7 is there a lot more headroom? Do we see it 90 in a quarter? And at the moment what are you buying, which are the two or three best assets?

A: We are certainly buying Japanese stocks at this point in time. The finance minister’s warnings today in Tokyo that he thought the yen had appreciated too rapidly has put a bit of a break in that but that probably 120 on the dollar-yen across is where that support point is at this point in time in the foreseeable future. So, potential for a little bit more Yen depreciation before that is over. Certainly that is putting pressure on the South Korean market as well and exporters in that jurisdiction.

We are buying Indian interest rate sensitive stocks because they are the ones that took a bit of a back step in the last week or so when there were concerns about the monetary easing.