Markets To Have An Ugly Opening

Equities showing drastic movement over the likelihood, sustainability, extent and continual of monetary policy has become standard these days. Uncertainty over it can keep the markets swinging in either direction and the sensitivity of the markets to actions and sentiments around the monetary policy has steepened.

A good example lies in the US where indices were touching multi-year highs on the back of its USD 85 billion bond-buying programme. As soon as talks of tapering it down hit the markets, equities started to dive session after session. The markets started to excessively react to every statement hinting towards a narrowing down or to every positive sign in macroeconomic data. Soon, the markets started to cheer about bad data and be disappointed over good data. Almost like signs of recovery weren’t welcome.

Losses were also seen globally as the Bank of Japan kept its monetary policy steady. Stocks have hence continued their losing streak and the US markets saw yet another day of losses to the extent of 1%. The opening on the Asian markets is extremely sorry today. The Asia Dow is lower by 1.95%, the Nikkei, Hang Seng and Shanghai Composite by 4.98%, 2.35% and 2.30% respectively. Singapore is trading lower by 1.66%. There seems to be no doubt that the Indian markets are going to open lower based on these global cues. The SGX Nifty was seen trading lower by 50 points at 07:30 AM.

Domestically too the mood has been rather subdued. This is only going to result in more support towards a downfall. The latest macroeconomic data, that was released yesterday points towards no strong momentum towards growth. IIP for April 2013 came in at 2%, as compared to market expectations of 2.7% and a previous reading of 2.5%. CPI numbers too were released yesterday. For the month of May 2013, the CPI came in at 9.3% compared to 9.4% previously. Although lower, the figure is above expectations.

Thus, lower than expected IIP and higher than expected CPI didn’t make it a good day for the markets. The rupee however reversed its falling trend yesterday and closed at 57.9125 to the dollar. However, the recent depreciation in the currency, worries over the current account deficit, high inflation and lower growth have been hinting towards inaction on the monetary policy front.

The RBI is scheduled to meet for the policy review on June 17, 2013. Till then, uncertainty will prevail in the Indian markets. Direction will be driven by hopes and sentiment. Moreover, global cues will continue to have a massive effect on the nature of the markets, especially if cues are as strong as they are today. For the day, expect the markets to see an ugly opening.