Global Cues Likely to Suppress Gains

The Indian markets yesterday saw some heavy buying and traded positively in a range-bound manner through the day. At the end of the second half, the markets soared higher, breaking limits and reaching a five-month high. The Sensex closed 194.18 points higher at 17,885.26, up by 1.10 per cent while the Nifty closed 54.70 points higher at 5,421, up by 1.02 per cent. This was mainly due to mildly positive global cues like hopes over Europe’s action on the Greek front and reports of a fresh stimulus by China for the second half of the year to boost the economy and to encourage credit. Better housing figures too helped investors be optimistic about the markets worldwide.

The U.S. markets though closed negative on Wednesday with the Dow Jones, S&P 500 and Nasdaq lower by 0.51 per cent, 0.35 per cent and 0.29 per cent respectively. These markets were mainly pushed down by the technology stocks which saw major selling, thus weighing the markets down. Of these, Apple, which was reported to be the world’s most valuable company based on market capitalization one day earlier, fell by 1.4 per cent to USD 656.06. Along with this, Facebook came down by 4.3 per cent after Peter Thiel, Facebook’s major outside investor, sold more than 20 million shares of the scrip. The technology drop overpowered the optimism about the euro leaders making progress in turning the situation around.

Meanwhile in Europe, optimism over the turnaround continued to push the markets upwards with the FTSE, DAX and CAC closing the day positively by 0.57 per cent, 0.79 per cent and 0.94 per cent. Increasing reports have been circulating over the ECB’s plan to cap bond yields. If this works out, it would provide the markets with a lot of optimism in terms of risk sentiment. The prime minister of Greece is to meet several euro zone leaders over the week. Investors would be keeping a close eye on this for it will decide the sentiment of the markets in the coming weeks.

The Asian stocks though have opened negative today as Japan has moved from having a trade surplus to posting a trade deficit. Exports have been severely affected for Japan due to the slowdown in China as also the euro crisis. Apart from the weak demand, the strengthening Yen has made matters worse. The export-driven economy’s GDP for the quarter ending June was reported to be 1.4 per cent as compared to 5.5 per cent in the previous quarter. With this, the Hang Seng and Nikkei have opened negative and are trading lower by 0.74 per cent and 0.64 per cent respectively.

Oil has soared to a level near its three-month high because of a drop in the U.S. crude stockpiles. A Department of Energy report in the U.S. showed that supplies slid by 2,50,000 barrels. This drove the oil price higher by 0.15 per cent to USD 114.81 per barrel for Brent crude futures. Today we see mixed cues coming from various parts of the world with technology stocks weighing the markets down in the U.S. and Japan’s trade deficit overpowering the optimism over developments in Europe.

In India, yesterday’s trading was also supported by the slight easing seen in inflation through the CPI data. Though the CPI has been below 10, it still hovers above the comfort level. Moreover, the rising crude oil prices increase the risk of another round of fuel price hikes. But the fact remains that the Nifty crossed the 5400 mark and there could be continued buying today as well. Taking into consideration the above factors, we think the markets would open flat today.