The Week Could Begin Weakly

Last week, was a rather eventful one for the markets. A host of macro data came up from various parts of the world, and, the actions, or at least the talk of policy makers that followed such data points saw markets react in a typical manner. How does this week begin? Well the most important development or data point that the market will read into going into this week is the American jobs data that came in late Friday.

An improving employment market in the US spells good on the longer term prospects, but is sure to send some shivers down the market’s spine. The Feds talk of tapering the QE3 will now get louder. But the point to consider would be, is just the employment data enough for the Fed to decide on curtailing its bond buying? Economic growth is a result of multiple factors at work. More so in a globalised economy like the one we live in today, it is practically impossible to make decisions without considering the larger picture. While all this is good theory, there is every practical reason why the markets will react to that good US employment number today.

On the European front efforts have already been made to stem the damage that may happen on talks of the QE3 taper surfacing again. A majority of the European central banks have very clearly spelled out their intention of maintaining an easy monetary policy in an attempt to keep the recovery going steadily. In fact, if ECB president Mario Draghi is to be believed, interest rates could come down further.

The US markets rallied Friday backed by the strong jobs data and the European front too has been smart enough in handling matters back home. So, where does all this lead the Asian markets this morning? It does not seem to be a particularly good start to the week at least in Asia. Except for Japan, which too is only marginally up (13 points on the Nikkei) all others are in the red. Hong Kong has been the biggest loser so far with the Hang Seng down by a whopping 500 points (more than 2%). Taiwan, Korea, Malaysia and Indonesia too aren’t doing well and Singapore is trading down by almost a percent. The SGX Nifty at this point in time is trading a huge 53 points down, while the Chinese Shanghai Composite is trading down by more than 2%.

The Chinese State Councils’ statement spelling out the details of its economic restructuring and financial reforms plan seems to have hurt market sentiment badly in the Chinese region. A possibility or rather a clear indication that China was in no mood to ease policies despite growth having slowed down there, is weighing heavily on markets in that region.

Back home, the focus once again shifts to corporate results. The June quarter results will soon start flowing in. Not that anything great is expected of India Inc this time too, but there could be surprises in store at least in certain pockets. But that trigger is a couple of days away. The week begins with a clear focus on global macro developments that have happened over the weekend. A strengthening dollar will be the key factor to watch out in the Indian context. The overall sentiment for the markets does not seem to be too good to begin the week. You could see the markets open in the red and trade with a downward bias throughout today. A better strategy would be to see how the market reads into what is being thrown at it.

Policy makers seem to be coming together (or should you say patching up their differences) to stem the slide of the rupee. According to reports a high level meeting between the Prime Minister, the Finance Minster and a few top officials has sought to ease out differences among policymakers which is believed to be hurting the rupee and the economy. Well a good diplomatic move, so to say. Will it help? At this stage it is better to believe it will.