Shielding From Headwinds

The ICE dollar index, which is a measure of the dollar against six other major currencies rose yesterday by 0.06% to reach its highest level since June 2010. At the same time, oil futures climbed well above USD 104 per barrel to a 14 month high as the American Petroleum Institute reported a 9 million barrel drop in supplies for the week ended July 5, 2013.

Ideally, both these factors should have caused a worrying situation for the Indian markets. A depreciating currency coupled with a higher fuel bill results in a familiar downward reaction on the markets. However, RBI and SEBI intervention that resulted in a ban on proprietary trading and a raise in the margin requirement for currency futures, helped curb speculation and bring down the volatility in the rupee. The rupee ended the day lower at 60.45 the dollar.

This move clearly shielded the Indian markets from currency depreciation, saving it yet another downfall because of dual headwinds. The markets are now expected to take cues from global markets and act accordingly for the day. How will global sentiment mould the Indian markets today?

Global sentiment has been positive. US stocks have clinched gains and are trading very close to record levels. An improving economic situation has been responsible for the reaction on the markets.

The outlook also seems improved in the UK with the International Monetary Fund (IMF) lifting its economic forecast for the GDP of UK in 2013 to 0.9% from an earlier estimate of 0.6%. It kept the forecast for 2014 intact at 1.5%.

Europe too seemed positive as euro-zone ministers agreed on the provision USD 3.9 billion in aid to Greece. Moreover, a positive result announcement by Alcoa has sparked optimism about earnings across the globe.

The only drag on the markets would be from Chinese data. Released a few minutes ago, China’s trade performance for June 2013 has been disappointing. Exports fell by 3.1% and imports dropped by 0.7%. This has resulted in some moderation on the gains Asian stocks witnessed this morning.

Although global cues have been positive and have resulted in a good day for markets around the globe, the just-released Chinese data is likely to weigh on the markets. This will result in a soft opening for the Indian markets.