Upward Momentum To Continue For Today, Albeit Slowly

Finally, some respite. The markets turned around yesterday after having struggled for almost five days in the red. Are the bulls all set to gain control once again, or is it that the bears are taking a temporary pause? Well, this will be clear very soon. The result season begins tomorrow in the true sense with Infosys all set to announce its numbers for the March quarter and full year. The quality of its performance will set the tone for the markets behavior over the near future. There is a lot of optimism getting built around, not just Infosys’ but generally around the whole pack of IT companies. Will they be able to turn the trend in favor of the bulls? The day isn’t too far.

Yesterday’s market action centered on two main factors; the Chinese trade data that came in during the day and the US Budget announced by Obama. A higher import demand from China may not spell good for that country, but is extremely encouraging for others including India. Chinese imports in the month of March were up 14% against a 15% decline in February.  On the other hand, its exports were up 10% against a 22% rise in the month the month of February. A decline in exports to the European region and the US is being blamed for such numbers. But the net result of this trade was visible in the way global markets have reacted to it. Markets in the European region closed at their highest level of the week riding on this piece of data. What also helped were talks of the extension of bailouts extended to Ireland and Portugal by seven years.

The US Federal Reserve came out with its Minutes of the meeting held in March. These acted as the stepping stone for the markets yesterday. Several of its officials were reportedly said to be in favour of tapering the bond purchases later in the year and stop it completely by year-end if the labour market improves. The ‘if’ adds the required cushion to any worries that the government may really act on reducing its bond buying or stopping it altogether. Employment generation in the US has been the slowest in the month of March over the past nine odd months. Hence, the caveat about that factor improving as a precursor to tightening the monetary policy is right now not in favour of the government. In fact, it could be months before any significant and meaningful improvement can be expected on that front.

Fiscal consolidation seems to have become the norm with all governments across the globe. The budget for CY13 announced by Obama yesterday spoke a lot about this and is aimed at curtailing the deficit to a more manageable level. This will surely be taken to be a welcome sign by the markets. But the one question that nags us is, how will this be achieved. Curtailing government spending is one way to do it. That has already been put in place by the Obama administration, but the monetary policy which is actually infusing liquidity into the system could act as a contrarian factor to this intent. But all these are larger macro problems which will not hurt the market sentiment at least for now. This was visible in the way the frontline US indices have notched up new lifetime highs yesterday.

All these cues have ensured that Asian markets open in the green, and are likely to sustain their momentum through the day. The Yen which seems will never regain strength and will only continue to weaken has been the biggest propellant for the Japanese markets. The Nikkei continues to scale multi-year highs buoyed by an easy monetary policy of the  BoJ and the weakening Yen. All other markets in the Asian region are riding high on the Chinese economic data points which bode well for the them; the latest being its trade data as mentioned earlier. Except for Korea all markets are trading in the green. Hong Kong and Taiwan is leading the pack followed by others including Singapore.

So, where does the Indian market open today and more importantly what does it do through the day? Well, global cues including the SGX Nifty which is currently a good 36 points up signal towards a fairly decent open to the markets. Will they be able to sustain the momentum that has set in since yesterday? Probably the move today will be a slow grinding climb. With the Infosys’ results coming in tomorrow, caution is likely to be the key word for today’s market action. It could well be important to watch out for stock specific trades until a firm trend reversal is in view and the markets begin to rally sustainably.