UK, Europe, Portugal and Egypt To Boost Markets

Federal Reserve Chairman Ben Bernanke talking about cutting down on monetary easing did much more than just hurt the sentiment in the US markets. Fears of this move rattling the already fragile euro-zone economies swept through the markets. These jitters spread about at a time when the sentiment was already brittle onaccount
of developments in Lisbon. The cowed reaction to these factors was seen in global markets this week.

Amid this, investors were closely eyeing the central bank meetings in the UK and in the euro-zone. Developments on this front were expected to take focus as the markets looked to pick cues up and they did. Markets in Europe and Asia have reacted positively to the outcome of these meetings and India is likely to follow suit. Here is an account of what happened.

The Bank of England maintained its official bank rate paid on commercial banks reserves at 0.5%. It also maintained the stock of asset purchases financed by the issuance of central bank at 375 billion pounds. In an unusual step, the Bank of England’s Monetary Policy Committee released a policy statement that many read as dovish. Signs of recovery in the UK have started to become visible and maintaining the status of the monetary policy strengthened sentiment to a large extent.

Just as the comments from Bank of England’s new Governor Mark Carney appeared, came European Central Bank Mario Draghi’s comments. He said at a press conference that interest rates will remain low or even go lower for an extended period of time. Investors were impressed by the fact that Draghi was open to all options to help the economy revive. He added to optimism by saying that the euro-area activity should stabilise and recover in the course of the year, albeit at a subdued pace. With this, Draghi yesterday did manage to undergo some damage-repair because of fears of the US cutting its quantitative easing programme.

The political crisis in Portugal appeared to be calming down as the Prime Minister and leader of the junior partner in the government held meetings to keep the coalition intact.

Improvement was also caused by the fact that Egypt named a new interim president after the Egyptian military ousted President Mohammed Morsi from office in a military coup.

All these happenings resulted in a very positive day on equity markets. While the US remained closed on account of Independence Day, Europe cheered away. The FTSE, DAX and CAC gained 3.08%, 2.10% and 2.89% respectively. The FTSE MIB, IBEX and Stoxx 600 gained 3.44%, 3.07% and 2.29% respectively. Asia too has opened on a positive note with the Nikkei and Hang Seng trading higher by 1.21% and 1.35% respectively. The Asia Dow and Singapore are higher by 0.68% and 0.63% respectively. Shanghai is currently trading flat.

While global equities are clearly positive about cues, India is likely to follow suit. The SGX Nifty was seen trading higher by 44 points at 08:00 AM earlier today. Domestically, currency pressures continue to remain with the rupee ending the day at 60.13 to the dollar. However, oil prices eased because of relief in Egypt and that is likely to ease some pressure of the Indian economy.

Overall, the day seems positive for the Indian markets.