Monsoon progressed well during the week, with cumulative rainfall now 1% surplus of normal as compared to 25% deficit in the mid of June. Monsoon has now covered all major agricultural states. However, sowing is down 22% YoY, which is understandable given that Kharif season has been delayed by around 15 days. There has been a sharp drop in Cotton and Oilseeds sowing, as certain state governments including Maharashtra advised farmers against sowing Cotton till monsoon sets in.

The focus would now be on the progress of monsoon through July-August (around 60% of total South West monsoon), as rainfall was above-normal in June last monsoon also (CY15) but dwindled as the season progressed. However, both IMD and Skymet have forecast above-normal rains in July and August this monsoon.

Globally, bond yields plunged to new record lows, foreboding a global recession. US 10-year yield has fallen to 1.38% (1.75% pre-Brexit), UK at 0.78% (vs 1.37%), Germany at-0.17% (vs 0.09%), and Japan at -0.28% (vs -0.14%). The yield spread between 10-year US Treasury bond and the two-year note is down to ~80 bps – the lowest since November 14, 2007. However, the saving grace is that while yield curves are flattening they have not inverted just yet (which is widely viewed as a sure sign of an imminent recession). The possibility of a US Fed rate hike has also diminished significantly. The Fed futures hint at just ~11% probability for an interest rate hike by the end of 2016; this implies almost no change in Fed policy over this period in complete contrast to the scenario that existed just before the Brexit vote.

Monsoon Update

Monsoon progressed well during the week, with cumulative rainfall now 1% surplus of normal as compared to 25% deficit in the mid of June. Monsoon has now covered all major agricultural states. However, sowing is down 22% YoY, which is understandable given that Kharif season has been delayed by around 15 days. There has been a sharp drop in Cotton and Oilseeds sowing, as certain state governments including Maharashtra advised farmers against sowing Cotton till monsoon sets in.

The focus would now be on the progress of monsoon through July-August (around 60% of total South West monsoon), as rainfall was above-normal in June last monsoon also (CY15) but dwindled as the season progressed. However, both IMD and Skymet have forecast above-normal rains in July and August this monsoon.