Major Global And Domestic Dynamics May Push Markets Low

The Indian markets on Wednesday, September 18, 2012 saw a range-bound trading session with the CPI data coming in at noon after which the markets took a downturn. The CPI figure came in at 10.03 per cent for August as compared to 9.86 per cent in July. The overall global sentiment was not too favourable as well, thus providing no added stimulus for the markets to trade higher. The sentiment was mainly dragged down because of worries over China. Moreover, anti-Japanese protests in China had several Japanese companies halting operations, production and commercial developments in China. Since the two economies are highly inter-linked, the existing concerns over China’s outlook have deepened.

Meanwhile, there have been a lot of developments on the global and domestic front even as the Indian markets took an off yesterday on account of Ganesh Chaturthi. These developments are likely to mould the way the markets move today.

The U.S. markets saw a slight gain on Wednesday due to strength witnessed in the housing sector while at the same time it was weighed down heavily by the energy sector. On the housing data front, the National Association of Realtors said that housing sales had risen by 7.8 per cent in August to an annual rate of 4.82 million which came in way higher than the expected 4.6 million. A heavy drop in oil prices weighed in after the report on weekly oil inventories was released by the Energy Information Administration that indicated a larger-than-expected increase in supply. The easing announced by Japan too gave the markets an upward trend. With this the Dow, S&P and Nasdaq closed higher in the range of 0.1 per cent and 0.16 per cent.

Europe saw considerable amount of gains coming in due to the announcement of stimulus by the Bank of Japan (BoJ) which stated that it would boost its asset purchasing program by approximately JPY 10 trillion to JPY 80 trillion by buying JPY 5 trillion of short-term and JPY 5 trillion of long-term government bills. The time frame for this buying would be pushed to the end of 2013. With this, the FTSE, DAX and CAC closed higher by 0.34 per cent, 0.59 per cent and 0.55 per cent respectively.

The Asian markets have opened negative today after having gained on Wednesday due to BoJ’s stimulus announcement. The August trade deficit for Japan has come in wider than levels seen in July. The available data indicates that the total exports fell by 5.8 per cent while the imports dropped by 5.4 per cent. The trade deficit for August was seen at JPY 754.1 billion, lower on a YoY basis but higher than JPY 517.4 billion in July. Exports to Japan’s top trading partner, China, fell by 9.9 per cent while those to the U.S. increased by 10.3 per cent and dropped by 22.9 per cent to the EU. The Asian markets today opened negative between 0.33 per cent and 0.67 per cent. HSBC’s preliminary reading of the Chinese manufacturing PMI has been announced minutes back and it suggests output lower at sharpest rate in 10 months at 47.0. At the same time, flash PMI stood at 47.8 which is a slight improvement from the 47.6 in August. 

Oil saw some drastic changes over the last couple of days, having dropped by 3.28 per cent on Wednesday. This was on the back of the EIA report showing larger-than-expected oil supplies that showed a rise in inventories to 8.5 million barrels in the week ending September 14, 2012. The demand for oil too has been witnessing weakness due to the overall lack of strength in China and the European Union.

The rupee remained strong due to a recent break in policy paralysis. This strength was supported by a weak dollar in the global markets due to BoJ’s stimulus move. On the domestic front, Trinamool Congress’ chief Mamata Banerjee on Wednesday said she would stick to her decision of pulling out from the UPA government due to disappointment over decision on retail FDI, hike in diesel prices and the cap on subsidies for LPG cylinders. With so many developments in play, we expect the markets to open negative today.