A Wary Market Will Closely Watch HSBC’s PMI Numbers

The markets can really baffle you at times. Factors which are seemingly priced in, create a double impact when they actually unfold. Was the market expecting the GDP numbers to be a surprise? Wasn’t a sub par growth already into the prices? Even if you consider that this is true of the March quarter and that the reaction was to the full year numbers that came out, how on earth can full year numbers be any better when throughout the year, there has been a gradual slowdown in growth? Yet the markets reacted and they did so badly. The Sensex lost more than 450 points while the Nifty was down by almost 140 points.

The past week has been more or less macro focused, with data from various parts of the world, particularly the US driving markets. of course there have been developments on the domestic corporate front too which are worth noting as we move into a new trading week today. It may sound a bit repetitive as most of it has been widely discussed over the past two days, yet one surely cannot open the week without a reference to it. The big news is that NR Narayana Murthy is coming back. The co-founder of the IT giant is returning as the executive chairman to handle business and bring it out of the rut. Good for Infosys. But, will it really help? The business environment as it stands today is distinctly different from what NRN probably handled. This is true particularly with reference to the IT space. How much of difference in these challenging times can NRNs return do to Infy will be something interesting to watch out for. Meanwhile, did you see the stock’s performance of Friday? While the broader markets tanked, Infosys was up almost 3 per cent on Friday. Did someone know about NRNs return? Worth investigating, isn’t it?

Between, last week the European markets closed negative for the second straight week taking cues from macro data particularly on the consumer confidence front that came out of the US. Worries about the Fed tapering off its stimulus program have spooked markets in the Europe for quite some time now. An economic recovery and more importantly the quality of that recovery is being closely watched for any indications which may push the Fed into slowing down its bond buying and gradually taking it off the table. Until that happens, the liquidity driven rise of the markets is nowhere under threat. But what is the data actually saying?

Home values are rising and consumer confidence is high. But all this would make more sense only if the employment scenario improves. On that front there has been only a marginal improvement out there and it remains the only reason why the Fed would not want to bring down its stimulus program. An economic recovery without a meaningful improvement in the jobs markets does not spell as good as it should. With indications that the situation isn’t bad on that front, the resilience of the recovery is now being measured as to being real. Good or bad? Well, good for the US but probably bad for markets globally, as fears of a clampdown on liquidity will now begin to take root.

So how are markets behaving this morning? As mentioned, macro factors are now in focus. There is a whole lot of action on the data front that will happen today. the HSBC PMI numbers for various countries are to come in. A little more than an hour into trading today and HSBCs Markit Manufacturing PMI will be out. after a grossly disappointing GDP data, this number will hold some significance as the market tries to seek direction going forward.

Except for Hong Kong, the rest of Asia is reeling in the red as the economic data emerging this morning is not looking good. Readings, especially for China are being watched closely.  Though not very wayward, PMI numbers have missed expectations so far. The Hang Seng is the only index which is the green while all others are trading below the line.  Japan is particularly week this morning with the Nikkei having lost more than 2 per cent until now. China, Singapore, Korea, Taiwan, Indonesia and Malaysia are all trading in a very dicey zone with no conclusive direction.

How will the markets open the fresh week? Well, nothing good in the offing apparently. The markets are likely to be weighed down by pressures that kept them subdued towards the end of last week. Worries about who will act to put economic growth back on track have resurfaced once again. Will the RBI cut down on interest rates to foster growth? Or, will it again be left to the government to ensure that growth comes back? Whoever does it, what really matters to the market is that there have to be some concrete steps in that direction. You could see a flat to negative open and a cautious market trend as participants will be wary of the data points that will come out throughout the day for various regions including India from the HSBC PMI stable.