Will The Next Seven Days Make Or Break The Markets?

The markets would remain very volatile for the next seven days on the back of crucial data and certain events scheduled for this week. The situation, in fact, may turn intense as there would be some upheaval in the domestic as well as international markets. Broadly speaking, there are approximately eight big events which could drive the markets in either direction, a list of which is given herewith.

On September 11, trade data of three countries namely China, the U.K. and the U.S. are expected to be released which will reveal their trading pattern. The data will provide clues about the health of these economies and the overall health of many related countries. Further, Wednesday is going to be a big day since key global and domestic data is expected to be released. On the global front will be the German constitutional court ruling. According to media reports, this will be a nerve-wracking day for the euro traders.

There is also the Dutch election process. A victory for the Dutch Socialist Party, which was until recently leading the polls, would upend a German-led coalition of euro zone countries that favour fiscal austerity as a solution to the region’s troubles. It would add more political uncertainty to the euro crisis. On the same day we also have the European Commission’s proposal for bank regulatory reforms in which it is expected to push for sweeping oversight of the euro zone banks by the ECB.

On the domestic end we have the Index of Industrial Production (IIP) for the month of July 2012, which could also drive the market in either direction. To reiterate, the IIP for the first three months of FY13 (April, May and June) came in at -0.9 per cent, 2.5 per cent and -1.8 per cent respectively. For the June quarter of 2012, the IIP saw a negative growth of 0.1 per cent against a similar period of the previous year. We at DSIJ believe that this time too the numbers would be remaining more or less subdued as the economic scenario has just worsened.

Further, on September 13, the two-day FOMC’s meet will come to an end and market participants are waiting to hear some positives from the Federal Reserve regarding the third round of quantitative easing (QE). Any move in favour of the same would trigger the markets to a higher level. On September 14 we have the WPI numbers for the month of August 2012. The CPI numbers for the same month are about to be released next week on September 18. Both WPI and CPI had shown some kind of moderation in the month of July with the former coming in at below 7 per cent while the latter being in single digit i.e. at less than 10 per cent. Meanwhile, inflation continues to remain sticky in the near term but any moderation in numbers would definitely be cherished by the markets.

Even though the advance tax due date is on September 15, the impact will not be immediate since the markets will be closed. Most of the data would come in by Monday. With the slowing of the economic activity it is expected that the tax numbers may remain muted to subdued and here one could watch out for stock-specific movement rather than watching the broader indices as the latter would already be discounted. Higher tax outgo might help the share price of that company to inch a bit higher.

Next week will be a ‘big bang’ considering that the RBI’s monetary meet is scheduled for September 17. A rate cut would definitely cheer up the market but we at DSIJ believe that this time too the RBI will maintain its status quo. The WPI numbers would be the key in leading the RBI’s decision making process. Also, with the advance tax numbers’ deadline just ahead of the RBI meet, banks may face liquidity crunches and this might further result in the RBI reducing the cash reserve ratio (CRR).

The outcome of any of the above news might push the markets in either direction, which could either make it or break it for the investors. To recollect, the global markets had witnessed an excellent come-back last week during the fag end in the wake of positive cues from the ECB president Mario Draghi who announced a new and potentially unlimited bond-buying programme. We would advise our readers to adopt a ‘wait and watch’ approach and take cues from the development of the above events. Risk investors could take a ‘straddle’ position which might be helpful in this volatile environment.