Markets Likely To Remain In The Red

The markets may continue their downside today due to no significant improvement in the global situation and political inaction – factors that have weighed heavy on the economic scenario. Yesterday, the Sensex and Nifty took a heavy toll because of global cues and worries leading to a 1.64 per cent drop and 1.67 per cent drop respectively. The Sensex lost 281.09 points, closing lower at 16,877.35 while the Nifty lost 87.15 points, closing at 5,117.95.

In yesterday’s trading session, all the global markets dropped considerably. The U.S. markets closed in the negative in the range of 0.79 per cent and 1.2 per cent over the euro zone worries. The government bond yields in the U.S., UK and Germany fell to record lows as Europe’s debt crisis seems to be worsening.

In terms of European debt, while the Bund saw record yields, the Spanish bond yields rose to above 7 per cent and the credit default spreads for Spanish yields rose as much as 31 bps to an all-time high of 636 bps. The stocks in Europe fell drastically with the FTSE declining by 2.09 per cent. The DAX and CAC took a larger hit with them going in the negative by 3.18 per cent and 2.89 per cent respectively.The euro was seen trading very close to an 11-year low, about 0.7 per cent from the levels seen in 2000 as against the yen over rising concerns about the situation in Spain and Italy. This was also caused by the rating agency Moody’s downgrading the outlook on Netherlands and Germany to negative since they will have to shoulder the indebted nations of the euro zone. All of this action has happened ahead of the bond issue by Spain and Italy on July 26 and July 27 respectively. Spain plans to issue 84 and 175 days’ maturity bonds while Italy is issuing zero coupon bonds.

Moreover, London-based Markit Economics will release data on the estimates for manufacturing and output for the euro area later today. Investors are closely watching out for these numbers as they are expected to define the turn the markets will take worldwide. The Asian markets have opened in the negative in today’s trading session after seeing a downfall yesterday as well where Hang Seng dropped by 2.99 per cent. Today, Nikkei and Shanghai have been seen trading 0.56 and 0.17 per cent lower, a few minutes from the opening bells.

Due to the worsening euro crisis and below average data expected from the region’s manufacturing sector, oil was under pressure yesterday and dropped to USD 103.23 per barrel. If the euro data is not indicative of lesser concerns, oil is expected to see a further downfall. On the global currency front, there is humongous weakness in the euro. The rupee yesterday saw some weakness against the dollar as it started trading closer to the 56 mark with it trading close to 55.92 at a point of time. It closed at 55.7643, thus regaining some strength, but not significantly.

The recent rise in oil prices seen in the last two weeks has been eaten away by concerns and oil was seen trading at levels near USD 106 per barrel. This was coupled with minute improvement in the depreciating rupee situation. As expected, the OMCs announced a hike in petrol prices by Rs 0.70 per litre. This will further add to inflationary pressures which are expected to rise due to the delayed monsoon and the eventual rise in food prices. This too will add to domestic economic worries, thereby further affecting markets in the negative today.

To conclude, we think the negative streak is here to stay because of a worsening global situation and because of domestic pressures adding fuel to the fire. The market may trade in the negative all day unless there is some action taken in terms of reforms by the government.