Is It Time To Breathe A Little?

Global markets have been moving upwards due to a massively positive sentiment floating around. The US found a new trigger in employment data, where initial jobless claims dropped to the lowest levels since January 2008 while Europe was merry about the ECB cutting interest rates sending most European indices to 2013 record levels.

In the last few days, the Dow crossed 15000, the S&P had five straight record-high finishes, the Sensex rose by 2.5% in the first week of May and the Nifty closed above 6000. It was time the markets halted for a breath. And that’s exactly what happened yesterday. Ideally, here is where we would like to say, ‘didn’t we talk of correction in our previous pre-market update?’!

Wednesday’s closing formed a doji candlestick, the markets were in an overbought position and hence there was no ruling out consolidation. The Sensex closed lower by 0.26%, after reaching a low of 0.43% yesterday. The Nifty ended the day lower by 0.32%. The trend wasn’t however exclusively valid for India. US markets ended the day lower in the range of 0% and -0.39%.

Europe however showed some upward movement with the FTSE and DAX closing higher by 0.1% and 0.2% respectively. The reason for this was that in the UK, the monetary policy committee at the Bank of England decided to leave key lending rates at a record low of 0.5%, where it has stood since March 2009. It also left the size of its asset purchase programme unchanged. No surprises there.

Another reason for the markets to go a little lower was the development in the East. Data from China indicated a rise in consumer prices to an extent more than expected. The April 2013 CPI stood at 2.4% which sent out worries of the future of liquidity injection in the economy. Rising inflation interferes with easing of monetary policy. Developments in this direction in China could have global implications.

So what do we expect out of today? Globally, the markets seem to be halting for a little breather. There are no catalysts for the markets to react positively on at the moment. The next big data point comes on Monday wherein the US will release data on retail sales. Till then, we expect some correction/range-bound trading on the Indian markets.