Expect A Range Bound Trade Ahead Of RBI & FOMC Policy Meet

It was expected to be a new start for the new week; however it seems that the similar issues that affected the markets in the preceding week are likely to be there on mind of every investor. In the Past week the markets remained volatile ahead of the RBI and FOMC Meet scheduled on 18th December 2013. While the FOMC meet is important as it would clear the air about the expected early start of QE Taper, the RBI monetary policy reviews has now become more important as the consumer inflation has remain higher despite the efforts from RBI.

Just to quantify, the Consumer Price Index (CPI) for the month of November 2013 rose to 11.24%. The CPI has consistently remained higher (above the double digit mark) since past few months. With RBI solely aiming to curb the inflation even at the cost of growth,   many on the street are expecting the RBI to hike the Repo rate by another 25 bps. If that happens, it would be the third consecutive rate hike by the Governor since he has taken the charge. While the CPI has consistently remained higher the WPI data would be announced today. All eyes would be on the WPI as it would have a major bearing on the RBI policy changes.  The street consensus stands in the range of 6.90% to 7%.

As regards the inflation, going ahead if the Government takes the decision on price hike in Diesel, LPG and Kerosene, it will add to the inflationary pressure. Besides the major policy events, initial trends of the third instalment of corporate advance tax payments by mid next week would also provide clues to earnings for the December 2013 quarter.

On the global front, while the US markets had closed on a marginal positive zone, European markets closed on a negative note. Even the Asian markets today are trading in red. The data suggests, leading Asian indices witnessed a decline for a fourth day and is poised for a three-month low, after a gauge of Chinese manufacturing fell and as investors awaited a Federal Reserve meeting starting tomorrow that has been the focus of speculation over the timing of stimulus cuts. The HSBC Holdings Plc/Markit Economics preliminary manufacturing purchasing managers’ index for China fell to 50.5 in December, missing the 50.9 forecast in a Bloomberg survey after coming in at 50.8 in November 2013. Another negative came in from Japan, Large Japanese businesses pared their projections for capital spending this fiscal year, signalling headwinds for Abenomics as a sales-tax increase looms in April 2014.

As for the trades in Indian markets, the SGX Nifty is trading in red with loss of around 8 points. We expect the markets to remain range bound today, as not many would take a bold step to take new positions ahead of the WPI announcement and RBI policy scheduled on the Wednesday. So, today expect a marginal negative opening and then a range bound trade throughout the session.