Short Term Hiccups

The expiry of the September series would be remembered as one of the best in the recent times. During this period, CNX Nifty gained 9% while Sensex gained 8% giving happy times for the investors and traders. One would however like to know where the market is headed from this time? Well here we try to analyse it for you.

First and foremost, the QE jittery has faded, but is again expected to be emerging twice in this year. The best thing however is that markets are slowly getting prepared for it. The initially expected amount of USD 10-17 billion as a cut in QE seems to be discounted by global markets and if there is something higher than this, then only the markets would turn volatile.

The US Jobless claims have come below the expectations meaning that the fewer people have claimed that they are without job. Also the Continuing Jobless Claims data has come below the expectations, showing that the job creation rate in the US economy is better than expectations. US Fed has clearly said that it will have to monitor the economy for some time to see built up of any strength in the economy. There would be some consolidation in the data in the later months, but overall there is strength built up which will clearly help Fed to take the QE decision. We believe that it is most likely that Bernanke led FOMC would start winding down the QE in the December meet.

RBI, having learnt its lesson from the recent rupee mayhem, has now increased the repo rate. The FIIs are coming back to India which is evident from the fact that September 2013 so far has seen Rs 12820 crore of net FII investments. The debt market too has cooled down a bit. After the worst seen in the last three months, the net selling by FIIs in the bond markets has come down half a billion dollar against multi billion dollars in the June, July and August. The unexpected repo rate hike has increased the domestic bond yields by 20-30 basis points but RBI is monitoring them closely. In addition RBI would also use open market operations to ensure adequate liquidity in the system and soothe rising bond yields.

The short term jittery of the US government shutdown does not seem to be real threat. The logic is that, it will raise the debt ceiling, after all there is too much at stake. Would you even think that US government would default on any payment? The worst of the times are over for the US economy and it’s just the tailwind which is expected to over soon. Soon we believe that the issue would be forgotten by the markets and attention would be on the earning season and management commentary.

All these things are now expected to get factored in the market. In fact the global markets are already showing some signs of some positivity. Yesterday US markets rose on the back of the positive jobless claims data. Dow Jones, Nasdaq and S&P 500 index, all closed with more than 0.3% gains and rebounding from its longest losing streak this year. The European markets closed in red yesterday but one can expect a positive trading session there. Coming to Asia, most of the markets are green at this time cheering the US jobless claims data. Taking cues from this, we expect October series to open on positive note.