A Billion Dollar Question

‘To be or not to be’ is a question that the current Fed chairman may be asking to himself. The markets are also trying to find an answer to billion dollar question. The Fed’s FOMC meeting due today is the top of all the events in the world. In fact this has been the case for many months as it will decide the fate of the global liquidity. The performance of the global markets in the last few months suggests that any data or the statement came in favor of QE added value in the indices while anything that suggested that QE tapering is in near sight has taken froth out of markets. There have been an either ways movements in the markets. In this context the next two days are the most important days for the investors as markets may get shaken heavily.

Yesterday Global markets cheered a decision of Larry Summers to withdraw his bid from the race to succeed current Fed chairman Ben Bernanke. Investors bet that the USD 85 billion aka Quantitative Easing may continue for a little while. Larry Summers has long been seen as an opponent of the bond-buying program which has helped the US economy to lower the interest rates and improve the employment statistics. Summers exit now puts vice-chair Janet Yellen in the lead for the position for the top job at the most powerful central bank in the world. Yellen is believed to be a supporter of Quantitative Easing which is why the global markets mostly were up yesterday. The development came just a couple days before Fed is set to announce the fate of the bond buying program. Underlying thought could be that the US government is still in favor of the QE as the economy is not so strong at this juncture.

The domestic markets cut all the gains in the morning after inflation again gave some heads up. WPI for August came in at 6.1% which was above the July numbers as well as market expectation of 5.8%. While all other items in the basket have remained subdued, the food inflation has picked up very strong. Onion inflation has even gone up to 244%. The higher food prices are a big concern since it reduces the purchasing power of the people. Dr. Rajan’s first policy announcement due on 20^th September would again be a speculative event as markets would try to guage whether there would be any rate cut.

Despite the markets showing a little crack, the Indian rupee continued with its bull run as yesterday it further gained more than 1% to end the day at 62.83 against dollar. Oil prices yesterday fell as the deal between America and Russia reduced the chance of military action in Syria.

The Asian markets at this time are trading mixed in absence of any major trigger. The markets seem to be tired of the gaining further and eagerly awaiting the outcome of the FOMC and hence today there won’t be any action in the markets. The Indian markets should open flat and may there be able to be some profit booking. We reckon a sluggish day for the markets today.