Time For A Little Brightness?

We have seen many sessions of consistent losses over the last few days. Apart from the fact that there has to be a correction happening some place on a technical level, global cues are supportive of a little positivity on the opening today. Yesterday was a crucial day in terms of macroeconomic sentiment. The outcome of the Federal Reserve meeting and key economic data released in various parts of the world has come in steady; steady enough to be conducive of some upward movement.

The Fed’s statement was perceived by the globe as moderately dovish and it thus received a stable response on the markets with mild gains. The FOMC scaled down its economic outlook by changing its description of economic growth to modest from moderate (quite synonymous, one may say). It also noted that low inflation remains a concern for the economy. Along with these remarks, came in a series of data releases.

The ADP (Automatic Data processing) said private sector jobs increased by 200000 in July 2013, beating expectations.

The US GDP growth came in at 1.7% for Q2 2013 as against a downwardly revised 1.1% in Q1 2013.

According to the Labor Department, the US employment cost index rose 0.5% in Q2 2013, reaching a level higher than expected.

The Chicago PMI (Purchasing Managers’ Index) rose to 52.3 in July 2013 from 51.6 in June 2013.

Positive data indicating a faster tapering down and the FOMC’s inflation oriented remarks made for a reaction on the markets that was rather stable. Considering the fact that so many crucial data points were going to be made available to the markets in all of one day, volatility was expected to be heightened and drastic movement was expected out of the markets. Stability is always welcome though.

It has been a rather confusing start on the Asian markets today. In initial trades, the Chinese markets reacted positively the official manufacturing data which showed a gain in July 2013 to 50.3 from 50.1 in June 2013.

However, a few minutes ago, data released by HSBC and Markit Economics has been indicative of something different. According to this data the manufacturing PMI for China has dropped to 47.7 in July 2013 from 48.2 in June 2013. This indicates manufacturing activity to have dropped to an 11 month low. This data is likely to weigh on the markets and reverse some of the gains seen in initial trades.

While the global markets look more or less stable, the domestic markets are expected to take cues from here and see a flat to positive opening. The Indian markets, as mentioned yesterday, are sensitive to any moves by the Fed and the increasing debate on the markets over the scale and timeliness of the cut-down of monetary easing is likely to affect the Indian markets.

Moreover, a raise in petrol and diesel prices has been announced. There will be some support provided to the stock prices of heavyweights like HPCL, BPCL and IOC. This will result in some more support to the markets.

However, one cannot rule out volatility for the later part of the day. The ECB and BoE are scheduled to meet later in the day. This will result in volatility on the Indian markets at a time around Europe’s opening.