Markets To Be Sideways On Global Central Banks Move

The Indian markets may open sideways in line with global cues. The SGX Nifty is trading marginally higher by 1 point at 5,334, indicating a neutral or muted opening in either direction in today’s trade.

Yesterday the markets closed higher by 0.4 per cent with the broader indices showing some strength after the Foreign Ministry of Mauritius said that India has assured the country that its economic interests will not be harmed. The meeting between the foreign ministers of Singapore and Mauritius is scheduled soon with India’s Finance Minister Dr Manmohan Singh on issues related to GAAR. Investors are hoping that the outcome of the same will be positive.

Meanwhile, it seems that the global central banks are on a path to revive the growth of their respective economies. According to Bloomberg’s report, China yesterday post-market slashed its key rates in order to boost growth. The rate cut is the second of its kind in a month. The People’s Bank of China yesterday lowered the benchmark one-year lending rate by 0.31 percentage points and the one-year deposit rate by 0.25 percentage points, effective today.

Further, the European Central Bank also slashed the key rates in order to boost the economy. The ECB yesterday reduced its benchmark rate by 25 basis points to a record low of 0.75 per cent and took its deposit rate to zero from its earlier 25 basis points. However, the president remained silent on the Long Term Refinancing Option (LTRO). He further guided that the euro zone growth is a serious question and a rate cut would probably help the countries to see some amount of economic growth. About the economic environment, he said that the European economy is going through tough times and there are concerns which still hover above the economy. Further, media reports suggest that The Bank of England switched on the printing presses with a third round of quantitative easing, adding Euro 50 billion, thus taking the total amount to Euro 375 billion. Concerns raised by the ECB president led the European markets to close lower in the red zone.

The U.S. markets also released some data that drew a mixed response. Its employment data showed an improvement while the service industry data showed expansion at a slower pace in the month of June 2012, further highlighting Federal Reserve’s concern that economic growth isn’t strong enough to reduce unemployment. The above news coupled with the ECB announcement resulted in the U.S. markets to close lower.   

Reacting to the US and European markets cues overnight, the Asian markets have also opened in the negative territory with Hang Seng and Nikkei trading in the red zone. Meanwhile, after the rate cut by China, the Shanghai market is trading marginally higher.

The rupee has recovered from its all-time low and is trading above the comfort zone at Rs 55.025 against the USD. The RBI’s measures were not very effective in helping the rupee to regain strength against the dollar and hence some bolder moves are needed to stop the rupee from depreciating any further. Brent crude has again started moving northwards from the lower level of USD 89 to three digits i.e. USD 100 per barrel. This is after the global central banks have taken a dowish stance in order to boost their economies. If crude continues it upward trend and again reaches the USD 125 levels, then it would again make inflation inch higher and worsen our balance of payments, thereby affecting the economy. 

In conclusion, we expect the markets to remain volatile as they would react to the world’s central banks’ moves which could further turn the market in either direction. We would advise investors to play with caution.