Ending Scattershot Views

Global markets had been quite nervous ahead of the release of minutes from the Federal Reserve’s meetings. On their release, the reaction was rather mixed. Equities initially spiked but soon pared gains to end flat, treasury yields pared earlier losses and spiked to intraday highs but soon lost steam and ended lower and the dollar dropped. What do the minutes say? How will they act upon the Indian markets today?

The interpretation of minutes can result in many points, both bullish and bearish. The official record showed half the members of the Fed supporting ending the central bank’s bond-buying programme till the end of the year. Many of the members expressed the need for the programme to continue into 2014.

The minutes lacked a clear signal and this was reflected in the price movement of assets. Although Ben Bernanke, in a press meeting after the Fed meeting affirmed the tapering of asset purchases later this year, FOMC members seem to be scattered over this view.

However, later on Wednesday, Ben Bernanke, in a question and answer session said the central bank will be in no rush to raise rates once the unemployment threshold of 6.5% is reached. The purpose of the asset purchases is to give the economy forward momentum. He also raised concerns over very low inflation, reaffirming the central bank’s inflation target of 2%.

This led to a spike in US stock futures with the S&P 500 contract rising by 0.88%. The opening on Asian markets too has been positive.

Although the initial reaction was mixed, comments by Ben Bernanke made the day positive for global markets. Considerable gains can be expected on the Indian markets today.

However, some of these gains can be capped as news reports are indicative of the Finance Ministry has asked for the Oil Ministry to put an upward ceiling on the recently approved Rangarajan formula so as to avoid gas producers from reaping gains out of an upswing in global prices. Moreover, a suggestion for Reliance Industries to see outstanding gas promises at old prices has been made. This is likely to impact the markets and cap some gains.