An Ominous Start To A High Anxiety Week

After a listless week where the markets looked for triggers all over but found only a few other than corporate results, it is all set to begin a new week on a high anxiety note. The RBI meets for the third quarter review of its monetary policy tomorrow. That by and large serves as the starting point for the markets this week.

The probability of interest rates going down is being discounted by almost all. The RBI in its recent report has hinted that consumer price inflation is not likely to come down to its levels of comfort at least for the next one year and hence tinkering with rates on the lower side may not be possible for it. That leaves us with only alternative to think of where the learned governor leaves rates unchanged. A status quo on the interest rate front is almost a given in the present circumstances. Though it could sound too speculative, knowing Dr Rajan and his ability to read the future, there is no reason to completely believe that rates could be left unchanged.

This time around, he (Dr Rajan) has decided to be ahead of the FOMC which meets on the 29^th and 30^th. That seems to be an obvious hint of things to come. The most important of the global factors that is haunting markets today is the Fed’s decision on further tapering. The first round announced recently had a rather sheepish impact on global markets. However, another of it and markets across the globe will certainly get jittery over the sucking out of liquidity from the system.

The possibility of the Fed pulling the plug in any major way on the tapering front is very low. Signs of an economic recovery in the US are just getting a little clearer. But the sufficiency of these signs is suspect. While economic data has been hinting towards some improvement especially in their employment levels, the dependability of that data to enable a Fed decision in announcing a further taper is not there. That could be some distance away as of now. Globally however, the markets are already discounting a further taper and its likely impact, especially on the emerging markets.

Apart from the FOMC and the RBI meets, the week ahead is full of macro data coming out from various quarters of the world. While corporate results will continue to come in. The focus will now shift to economic data points. But this situation of corporate results plus economic data points is a very dangerous one. It adds an extra element to the volatility of the markets. While a stock specific move could hurt it, any disappointment on the data point front could be disastrous for the markets. Pray hard the Fed and the RBI do not step in to further exacerbate the situation.

Meanwhile, the first signs of how economic data is all set to rule this week come from the way the Asian markets have opened and are currently trading. It seems to be blood all over with Japan coming out with some really disappointing data. Japanese trade data has been well below expectations and that coupled with the dollars expected flight to quality seems to be hurting it very badly this morning. The Nikkei is down almost 3% followed closely by the Hang Seng (down 2.24%) and the Jakarta Composite in Indonesia which is currently trading down 2.77%. China isn’t too far behind. The Shanghai Composite is down 0.89% slightly trailing other markets like Malaysia (KLSE Composite down 1.21%), Singapore (Straits Times down 1.52%), Korea (Seoul Composite down 1.69%) and the Taiwan Weighted which is currently trading down 1.50%.

The signs are ominous. Looks like global markets are in a complete turmoil. There is no way that India could turn out to be an exception to all that is happening around it. The SGX Nifty is trading down a massive 100 points and that should be reason enough to worry at opening. Already suffering from high anxiety over the expected developments at the RBI tomorrow the global scenario pushes the market further into a sulk today. Be prepared for a rude shock at open. Any further development will strictly depend on more of global cues emerging in favour of it at least for today.