Markets Likely To Be Weighed Down By Global Cues

The Indian markets today are likely to open negative due to a not so favourable domestic economic situation and an overpowering negative global sentiment. This is likely to be further affected by the European opening later in the day as there is a release schedule of a whole lot of data which will reflect the overall health of the European economy. Although the markets were closed on Wednesday on account of Diwali and open on Tuesday for a short duration on account of ‘muhurat’ trading, the global cues still remain at the same stage as seen post the election outcome in the U.S.

On Wednesday, American President Barack Obama spoke about the approaching fiscal cliff and how a bi-partisan cooperation is the need of the hour. However, the markets have been extremely jittery over the upcoming event of more than USD 600 billion of spending cuts and tax increases in an effort to cut the yearly budget deficit by nearly half. The fiscal cliff would trigger in January should the government fail to negotiate terms and reach a consensual long-term plan to control the budget deficit.

On account of increasing worries over the fiscal cliff, the global markets have slipped by around 1 per cent. In the U.S., the Dow, S&P and Nasdaq had a fall of 1.45 per cent, 1.42 per cent and 1.28 per cent respectively. Europe too saw a sell-off due to the same reasons with the FTSE, DAX and CAC ending lower by 1.11 per cent, 0.94 per cent and 0.89 per cent respectively. The situation is no different in Asia except for in Japan where the markets are trading higher due to speculation that Japan’s opposition leader Shinzo Abe could become the next prime minister after the scheduled elections on December 16, 2012. Abe, being more aggressive on the fiscal and monetary policy fronts, has been taken positively by the markets, thus seeing gains of 0.98 per cent.

Today is going to be a big day in terms of the amount of data that investors will get to study, thus providing a clearer picture on how the global economy is faring. The GDP numbers of France, Germany, Spain, Italy and the Euro zone are to be announced today. This would be accompanied by the ECB monthly report, Euro zone CPI and retail sales in the UK. These numbers are likely to define the direction of the European markets and also accordingly mould the global sentiment. Thus, the European markets’ opening is also likely to be eyed by Indian investors later today. Similarly, Continuing Jobless Claims, CPI, NY Empire State Manufacturing Index, Initial Jobless Claims and speeches by Federal Reserve Chairman Ben Bernanke and FOMC Member Richard Fischer are likely to define the sentiment in the U.S.

While economic uncertainty hovers around the world, increasing activity in the Middle East has been driving oil prices higher. It traded at the highest level in more than a week as Israel attacked the Gaza strip, thereby raising supply worries.

Amidst this highly uncertain global background lies the Indian economy which reported a 0.4 per cent YoY decline in IIP and a CPI at 9.7 per cent, increasing concerns about fiscal health. The WPI data released on Wednesday eased a little at 7.45 per cent but the overall sentiment still remains unfavourable. All these factors are likely to have a cumulative negative effect on the Indian markets. This is likely to result in a downside volatile trading session today.