We Hate Uncertainty

This month so far has remained an extraordinary month as no local news has influenced the Indian markets. What concerned the markets is every news that is coming from the USA which eventually have decided the course of the markets in this month. First there was the US unemployment data, then came the FOMC meet and finally by end of this month, there is uncertainty on government shutdown. Owing to the latest uncertainty, the US markets have remained highly volatile. S&P 500 index has made its longest losing streak since December 28, 2012 when it was uncertain on the fiscal cliff.

The Senate by the end of the day has passed procedural vote on the stop gap spending bill by a 100-0 which has cleared an important hurdle on the stop gap spending bill. The key vote would now be taken on Friday or Saturday. The fiscal year ends on Monday and a failure to pass a bill would force a government shutdown which means that the US government would not be able to provide public services. With the US confidence already hammered, the government shutdown as we discussed yesterday, would not be a good sign for the markets.

Tracing these new developments, the European markets closed the day in red. The Asian markets are also down with Hang Seng down by 0.5% while Shanghai Composite down by more than 1.25%. Japanese Nikkei has reversed the morning losses on media reports that the government is urgently considering a reduction in corporate tax rates. If corporate taxes are lowered, that could offset any negative impact from the scheduled consumption tax hike on October 1.

Ahead today, the Indian markets will witness the September series expiry. The markets this month have remained highly volatile hence it is very difficult to gauge the course of the markets on the expiry day. We however believe that the markets would open again in the negative terrain and remain volatile by end of the day. A positive surprise from the markets cannot be ruled out.