Cheering To Bad News, Are We?

The directional trend on the Indian markets has been ruled by overpowering international cues lately. Strong data points from various parts of the world have been playing a cumulative effect on the bourses. Yesterday’s trading was a good example of how caution is necessary and how a close eye on international indicators is indispensable. So what’s happening really across the globe?

Europe has been volatile and dodgy since the return of Silvio Berlusconi. He managed to cause a stir in the recent elections in Italy and added to the uncertainty of the eurozone crisis. The scam-ridden former Italian Prime Minister’s comeback has given investors a big reason to worry. Moreover, unemployment in the eurozone touched a new high of 11.9% adding to the nervousness. It got no better with the Sentix Investor Confidence Index going down from -3.9 to -10.6.

Asian stocks had been low as Chinese authorities announced new property-buying restrictions, including higher down payments and rates on second homes in cities that have seen soaring real estate prices. They also imposed a 20% capital gains tax on sales of existing homes. This tightening was an attempt to curb real estate prices. However worries around lower demand, raw material consumption, energy demand, etc. proliferated. And this happened when the Chinese manufacturing PMI (Purchasing Managers’ Index) fell from 50.4 to 50.1 and non-manufacturing PMI from 56.2 to 54.5.

But these worries were shrugged off in today’s opening where Asian indices were trading higher in the range of 0.29% and 0.89%. And the reason – tracking of positive cues from Wall Street.

So, why is the US cheering? USD 85 billion worth automatic spending cuts got triggered on Friday. These measures are expected to cut jobs, affect monetary spending and shave off as much as half a percentage point out of growth. Doesn’t sound all that positive, does it? But optimism calls for banking on hopes of monetary stimulus programmes to make up for weak economic data and fiscal uncertainty. And that’s how US equities managed to pull off gains in the range of 0.27% and 0.45% and also spread the positivity and hopeful mindset into other economies.

Tracking the optimism on Wall Street and sentiment on Asian markets while conveniently ignoring domestic and international fiscal issues, we expect today’s markets to see a positive opening. Lesson: when something goes wrong on the fiscal front, stuff all the hope you have on monetary policy!