A Negative Opening Today?

Last week, there was a lot of movement in global markets because of worries around the actions of the Federal Reserve. The week was negative for most global markets as the sentiment turned sour overnight. Worries over the Fed tapering its bond-buying programmes took centre-stage. Lately, central bank policies had driven markets to multi-year highs, conveniently offsetting worries about growth. However, jitters on the prospects of this monetary easing soon led to nervousness.

So the equity markets have been driving upwards either on existing monetary policy or prospective monetary policy. Since the continual of aggressive easing depends on macroeconomic data, the markets have turned conversely sensitive to economic data. A good example of this showed up on US equities yesterday.

The Institute of Supply Management’s Index fell to 49% in May 2013, from 50.7% in April 2013. This was below the previous reading as well as below market expectations. However, this revived the through that the Fed would not curb its bond buying any time soon. To add to this were comments of Federal Reserve Bank of Atlanta President Dennis Lockhart’s who said the central bank remains committed to record stimulus and that any adjustment is not a policy shift. This led to gains of 0.26% to 0.92% on the US indices.

Negative data also flowed in from China. HSBC’s final reading of the manufacturing Purchasing Managers’ Index (PMI) fell to 49.2 from a preliminary reading of 49.6.

Both these data points led to considerable weakness in European and Asian equities. European indices ended the day with losses between 0.70% and 0.88%. The Hang Seng, Shanghai and Singapore are currently trading lower by 0.16%, 0.58% and 0.37% respectively. The SGX Nifty too was seen trading lower by 10.50 points at 08:00 AM.

Macroeconomic data coming in from various parts of the world has been weak. There are no major domestic cues to support the markets in a bullish trend. We thus expect the opening on the Indian markets to be negative today.