Faded Optimism on Fiscal Cliff Could Result In A Weak Opening

Yesterday panned out exactly as we had said it would. The markets remained rather lackluster with a downward bias. As we had said, BJPs decisive victory in Gujarat was a forgone conclusion and the markets had already priced that in. What came in as a limited surprise on the political front was the saffron party’s loss in Himachal Pradesh. Focus will now once again shifts to the government’s action on the reforms front.

Meanwhile, mixed macro economic trends emerged in the US, but what really stole the show out there last night was the continuing play on the ‘Fiscal Cliff’ negotiations between the Democrats and the Republicans. Voting on Plan B which proposes to limit the tax hikes only to those who earn in excess of a million dollars a year was canceled by House Republican leaders saying it didn’t have the support needed to pass. This drama around, how to avert going over the ‘fiscal cliff’ will continue till the last moments of the year. After trading in a flat to negative range for most part of the day, US markets turned around amidst talks of negotiations moving ahead of the talks between the two parties to close in the green.

Japanese markets which had closed negative yesterday are opened for trading significantly higher following the Bank of Japan’s announcement of plans to further ease monetary policy there. This is its attempt to boost the economy, bringing it out of the current stagnancy. Accordingly, the BoJ has left its interest rates at around zero to 0.1 per cent while extending its asset repurchase program. It will now buy around 101 trillion yen worth of assets up from the earlier 91 trillion yen that it was supposed to. This boost to liquidity is visible in the way the markets opened today. However, Asian markets have turned negative, due to the faded cliff optimism. 

Indian markets will certainly not fail to take note of the huge surge of liquidity that is likely to happen with the monetary easing that is happening globally. This will in all probability bring in huge money into India, being one of the most preferred emerging markets. Obviously the sentiment surrounding the markets is likely to remain good over the near future.

With the winter session of the Parliament coming to an end yesterday, there aren’t any immediate triggers for the market to react in early morning trades. It may seek direction from what happened in the US markets last night and from and from early signals coming in from its Asian peers. They may probably see a flat to negative opening, taking cues largely from global developments. The SGX Nifty has turned red this morning and could probably result in similar trading here.

As the day progresses European markets will track overnight developments in the US and are likely to open on a weak note. A lot of today’s trading could hence be largely stock specific. Watch out for our ‘Stocks in Action’ for today.