A Negative Day On The Markets Today

In an attempt to pause the free fall of the rupee, the RBI announced additional liquidity tightening measures yesterday. It reduced the liquidity adjustment facility (LAF) for each bank from 1% of the total deposits to 0.5%. This move will limit the access banks have to borrowed funds, in turn tightening the availability of liquidity. This measure will come into force with immediate effect and continue till further notice, informed the RBI.

One thing that markets anywhere on this planet don’t like is monetary tightening. The markets are expected to open on a negative note today.

The RBI also required banks to maintain a minimum daily CRR balance of 99% of the requirement, effective from July 27, 2013. It has been increased by the RBI from a current level of 70%.

The sentiment globally seems negative. The sentiment had improved considerably as the Chinese government leaders expressed their commitment in supporting growth in the country. The government said it will take action to not let growth fall below 7%.

However, this positive sentiment soon turned around as the Richmond Federal index (a performance indicator of manufacturers in the upper Southeast and mid-Atlantic) showed signs of softening. Manufacturing conditions, according to the index, dropped to -11 from 7, in June 2013.

This resulted in losses across American and European markets.

Moreover, data released a few minutes ago has hit the Asian markets negatively. Data released by HSBC and Markit Economics is suggesting a further slowdown in Chinese manufacturing in July 2013. The preliminary reading of the manufacturing Purchasing Managers’ Index (PMI) for July 2013 has dropped to 47.7 from 48.2 in June 2013. This level marks an 11-month low and is expected to further weigh on the markets today.