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What is the story about?
Uncertainty around the Strait of Hormuz is likely to keep global and Indian equity markets under pressure until there is progress in Iran-US negotiations, according to Prashant Paroda, Portfolio Manager, Emerging Markets, Allspring Global Investments.
"So, I believe it's just a question of who'll blink first, but till then, the markets will be kind of range-bound, and oil will continue to rise until we find any sort of breakthrough in Iran-US talks," he said.
He sees the US Federal Reserve postponing any interest rate hikes until after the US elections because of the political sensitivity surrounding such a decision.
This is an edited transcript of the interview.
Q: This fresh US-Iran flare-up over the last couple of days around the Strait of Hormuz is turning out to be a big overhang on the Indian markets. Anyway, we've been in a bit of a downdraft, and yesterday, we made a fresh lower low, breaching the 23,800 mark. How are you assessing the global markets and Indian markets in particular?
A: There's a lack of clarity with regard to the Strait of Hormuz. I saw a quote by the Qatar minister saying that unless we open or get into some sort of solution, this could be a big issue for economies in a couple of months. So, both sides, whether it's Iran or the US, neither side is blinking, and if Iran thought that just because the US midterms are coming, it would lead to a solution, it doesn't look like the US is too worried about the midterms at present.
So, I believe it is just a question of who'll blink first, but till then, the markets will be kind of range-bound, and oil will continue to rise until we find any sort of breakthrough in Iran-US talks.
Q: Give us a sense of the situation. We've always been talking about a certain amount of reflexivity, right? When oil goes up, it automatically invites actions and statements which kind of de-escalate the situation. Are we at that point yet? I read a report in The Wall Street Journal which said that diesel prices in the US are now closer to $6. Shouldn't that start to hurt and pinch?
A: It is starting to pinch consumers, and even gas prices are kind of going higher as well. But it looks like, for now, the US is ready to take some of the pain with the hope that Iran will come back to the table, and we will see, because elections are approaching in November, and if there is no clarity on the situation, it would sort of impact the turnout and how the votes go. But from Iran's standpoint as well, if their ships do not go, it's unclear what their situation is and how long they can resist this blockade from the US side as well.
Q: What about the Fed? Next week, all eyes will be on whether or not they're going to push through that rate hike. For now, the odds have gone up drastically after that jobs report. What do you think the Fed's going to do next?
A: It might become a political decision for the Fed, and they might decide to punt it till after the elections. So, we'll see whether rate hikes will happen. But I believe it will be quite sensitive to do it right before the elections. So, my hunch is that they might punt it till after the elections.
For the full interview, watch the accompanying video
Catch all the latest updates from the stock market here
"So, I believe it's just a question of who'll blink first, but till then, the markets will be kind of range-bound, and oil will continue to rise until we find any sort of breakthrough in Iran-US talks," he said.
He sees the US Federal Reserve postponing any interest rate hikes until after the US elections because of the political sensitivity surrounding such a decision.
This is an edited transcript of the interview.
Q: This fresh US-Iran flare-up over the last couple of days around the Strait of Hormuz is turning out to be a big overhang on the Indian markets. Anyway, we've been in a bit of a downdraft, and yesterday, we made a fresh lower low, breaching the 23,800 mark. How are you assessing the global markets and Indian markets in particular?
A: There's a lack of clarity with regard to the Strait of Hormuz. I saw a quote by the Qatar minister saying that unless we open or get into some sort of solution, this could be a big issue for economies in a couple of months. So, both sides, whether it's Iran or the US, neither side is blinking, and if Iran thought that just because the US midterms are coming, it would lead to a solution, it doesn't look like the US is too worried about the midterms at present.
So, I believe it is just a question of who'll blink first, but till then, the markets will be kind of range-bound, and oil will continue to rise until we find any sort of breakthrough in Iran-US talks.
Q: Give us a sense of the situation. We've always been talking about a certain amount of reflexivity, right? When oil goes up, it automatically invites actions and statements which kind of de-escalate the situation. Are we at that point yet? I read a report in The Wall Street Journal which said that diesel prices in the US are now closer to $6. Shouldn't that start to hurt and pinch?
A: It is starting to pinch consumers, and even gas prices are kind of going higher as well. But it looks like, for now, the US is ready to take some of the pain with the hope that Iran will come back to the table, and we will see, because elections are approaching in November, and if there is no clarity on the situation, it would sort of impact the turnout and how the votes go. But from Iran's standpoint as well, if their ships do not go, it's unclear what their situation is and how long they can resist this blockade from the US side as well.
Q: What about the Fed? Next week, all eyes will be on whether or not they're going to push through that rate hike. For now, the odds have gone up drastically after that jobs report. What do you think the Fed's going to do next?
A: It might become a political decision for the Fed, and they might decide to punt it till after the elections. So, we'll see whether rate hikes will happen. But I believe it will be quite sensitive to do it right before the elections. So, my hunch is that they might punt it till after the elections.
For the full interview, watch the accompanying video
Catch all the latest updates from the stock market here
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