9 Factors That Will Shape The Markets Today

The earnings season in the US has seen a good start. The day before yesterday JPMorgan Chase & Co and Wells Fargo announced a good set of numbers and cheered the markets. Yesterday, Citigroup Inc. reported better-than-anticipated earnings and kept the momentum at pace. Impact: Positive

US retail sales rose 0.4% in June 2013 boosted by automobile sales. However, sales of other segments disappointed as they were either unchanged or soft. The numbers were largely dissatisfactory as they fell short the estimated 0.9% growth. Impact: Negative

The Empire State Manufacturing survey showed that general business conditions improved in July 2013 for the fifth month in the last six months. The index rose to 9.5 from a previous reading of 7.8 and above market expectations of 5.9. Impact: Positive

The US dollar climbed because of the above factors. The markets also kept in focus Federal Reserve Chairman Ben Bernanke’s testimony later in the week. The ICE dollar index saw significant strength. Impact: Negative

In Portugal, the three main political parties set a deadline for agreeing on the national salvation pact. Stocks in Portugal had plummeted and bond yield had spiked due to political instability. This move is likely to show some positive signs and improve sentiment in Europe. Impact: Positive

China’s GDP showed a growth of 7.5% for Q2 2013. Although this is below the previous reading of 7.7% growth, it has matched expectations of the street. Impact: Neutral

Reacting to Federal Reserve Chairman Ben Bernanke saying last week that the US is in no hurry to raise interest rates, economic growth in China and manufacturing conditions in the US, oil saw some gains. On the NYMEX, oil for delivery in August saw gains of 0.4% to end the day at USD 106.32 to the barrel. Impact: Negative

Domestically, wholesale inflation for June 2013 came in at 4.86%, against 4.70% in May 2013 and below market expectations of 5%. These numbers provide some hope for the markets to expect a rate-cut from the RBI. These hopes were recently dampened as the consumer inflation last week showed an increase to 9.87% in June 2013 from 9.31% in May 2013. It is important to note however that the markets have already factored this in, in yesterday’s trades. Impact: Positive

The RBI has issued several measures to curb the decline in the rupee. Of these are,

The RBI has restricted banks’ borrowing through liquidity adjustment facility (LAF) to the extent of 1% of total deposits or Rs 75000 crore. This will be effective from July 17, 2013 and banks will have to look for alternate funding options to meet their overnight requirements in case they reach the said mark.

The RBI raised the Marginal Standing Facility (MSF) rate and bank rate by 200 bps each to 10.25%. The MSF is the rate at which banks can borrow from the RBI, thus making borrowing costlier.

The RBI would conduct open market operations of Rs 12000 crore to sell government securities on July 18, 2013.

Although these measures are taken in order to curb the depreciation in the rupee, these steps are money-tightening methods. Overall short term interest rates are expected to rise thus attracting foreign inflows. But the same measures are also bound to cause an increase in borrowing costs thus hurting growth. Impact: Negative

Although global macroeconomic cues are slightly skewed towards the positive, the Indian markets are likely to see a downfall today. The measures taken by the RBI are likely to take centre-stage and affect growth in the short-term. These steps are equivalent to monetary tightening and the impact is going to be negative on the markets today.