In today’s briefing:
- India: A Budget to Revive PCE, Labour-Intensive Exports & Urban Governance
- US Exceptionalism Not Totally Attributable to Information Technology
- Can the Stock Market Vigilantes Save the Bull?
- A Long-Term Sell Signal?
- Fenix Resources (FEX AU) Q2 FY25 Update: Close to Tripling Production
- Strong Consumer Spending Lead to Modest U.S. Q4 GDP
- Brazil Risk Premia
- India Needs a Better Debt Reduction Plan
India: A Budget to Revive PCE, Labour-Intensive Exports & Urban Governance
- Substantial reduction of tax rates for all income-tax payers will provide a robust boost to private consumption (PCE) in FY26, while reduction/rationalisation of customs duties boosts FDI and exports, medium-term.
- Commitment to reduce public debt to 47% of GDP by FY31, and taking FY26 fiscal deficit to 4.4% of GDP, likely to be met comfortably, as nominal GDP outperforms assumptions.
- Major support to labour-intensive exports (including tourism), and incentives for states to improve urban governance and power distribution, are forward-looking measures, as are bolsters for battery manufacturing.
US Exceptionalism Not Totally Attributable to Information Technology
- DeepSeek’s recent launch of a free-to-air artificial intelligence app without the need for high computer processing power has raised concerns about American technological superiority in the realm of AI.
- While technology made significant contributions to US equity outperformance due to very high operating margins, other sectors have contributed via shifting investor preferences towards entities that deploy capital more efficiently.
- Fiscal prudence rules in the Eurozone could undermine the region’s economic outlook. Cautious private sector activity in Germany undermines potential growth, boosting the attraction of US investment by German companies.
Can the Stock Market Vigilantes Save the Bull?
- The current environment suggests that traders should adopt a strategy of “buy the dip and sell the rips”.
- The combination of negative surprises during earnings season and potential bearish policy announcements when the market is overbought will put downward pressure on stock prices.
- On the other hand, investors should trust the stock market vigilantes to activate the Trump Put in the event of a market downdraft.
A Long-Term Sell Signal?
- Breadth indicators are flashing early cautionary signals for U.S. equities, but these signals can often be early in calling a major market top.
- A review of other indicators on different investing dimensions are either benign or cautious.
- We interpret this as the warning of a possible major market top in Q1 or Q2. Investors should monitor risk appetite indicators for tactical signs to turn cautious.
Fenix Resources (FEX AU) Q2 FY25 Update: Close to Tripling Production
- Fenix Resources (FEX AU) delivered impressive results for Q2 2025. Sales increased by 71% QoQ and 68% YoY, driven by the ramp-up of the Shine iron ore mine.
- The Beebyn-W11 mine, projected to ramp up production to 4 million tonnes from the current 2.5 million tonnes, is anticipated to receive final mining approval in the current quarter.
- Trading at 5.9x FY25e PE with 57 mn AUD in net cash, which accounts for 27% of its market capitalization, the stock is worth a look.
Strong Consumer Spending Lead to Modest U.S. Q4 GDP
- The 2.3% increase in Q4 GDP is little weaker than consensus expectations surveyed. But the data was supported by a significantly stronger than expected 4.2% rise in consumer spending
- Consumption keeps the pace of growth solid. Core PCE prices at 2.5% are on consensus, showing inflationary pressures moderately above target.
- Final sales rose by 3.2%, meaning a negative of 0.9% from inventories, and weak inventory growth in Q4 provides potential for a bounce in Q1 2025.
Brazil Risk Premia
- Brazil debt market has two domestic crises including inflation and fiscal policy, rather than a spillover from the U.S.
- Restrictive BCB policy helps produce some disinflation, which allows some rate cuts in H2. Brazil risk premium will likely be reduced latter in the year if a narrower bond spread.
- However, Brazil crisis over fiscal policy would not be fixed, which is the 2 precondition for a more dramatic narrowing of bond spreads versus the U.S.
India Needs a Better Debt Reduction Plan
- Despite the income tax cut, the FY26 budget is likely to be contractionary.
- Continued fiscal consolidation could require some costly trade-offs, if the recent budgets are any indication.
- To achieve the planned fiscal consolidation without significantly impacting growth, the government needs to re-assess the expenditure mix.
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