Stay Cautious, Do Not Ignore Global Noise

A disillusioned investor is still controllable when it comes to sidelining weaker economic data. But it gets fairly complicated when faced with a double whammy of dealing with a weak set of economic data as well as a dangerously poised geopolitical situation. The stage is all set for a deep cut in the benchmark indices as we enter a new week and of course a whole new month of trading. The markets went exactly as summarily predicted in the above two lines yesterday.

Ukraine is turning out to be a major problem that could assume catastrophic proportions very soon. The impact of the Russian standoff over Ukraine is being felt on global markets without any exception. Russia took some very aggressive steps to arrest the decline of its markets. Its central banking authority hiked interest rates from 5.5% to 7%, as its currency went downhill following a sharp demand for the dollar.

At a time when economic fundamentals are suspect and growth is only an illusion, a war like situation with a powerful nation like Russia at the centre is the last thing that markets would want. In fact the psychological impact of the situation is so big that even good economic data points were conveniently shrugged aside. Fears of economic sanctions on Russia are just one and the smaller part of the story. The larger part is the way matters could go if it escalates further. The US is already talking of a stern action and has warned Putin’s government. But given the independence of the Russian thought in protecting its political sovereignty it does not seem to be listening to those warnings very keenly as of now.

From Europe and US to the Asian shores, the markets have been roiled by a problem, which investors aren’t probably prepared to face. In the Indian context the problem lies in the flight to safety of the US dollar which will hurt the markets. Presently we are completely consumed by extraneous issues. For one, there is the political puzzle which is expected to fall in place by May of 2014 and now Ukraine has raised a fresh assault on the psych of the markets.

The week has just begun with a taste of blood. A pull out of dollars from risk on assets could see the markets go further downhill. At present, every fundamental factor assumes a back seat position no matter how strong it emerges. Worries are far more. On the fundamental side, export and import data along with overall trade balance will be declared this morning. That could in a way act as a counterbalancing factor for the markets otherwise worrying only about the global geopolitical situation.

After the drubbing yesterday, Asian markets have opened mixed this morning. The Japanese Nikkei is currently up 0.34% followed by the Hang Seng and the Straits Times in Hong Kong and Singapore which are up an average 0.30% each. All others are still finding it difficult to come out of the negativism. The Shanghai Composite in China is trading down more than half a percent. Here again, apart from the global factors, its own set of economic problems are at play. Indonesia, Malaysia, Korea and Taiwan are all trading down in with the Jakarta Composite facing a far weaker trading pattern than the others.

While the overall sentiment remains weak and shaky following global cues, a bounce back from the lower levels is likely this morning. The SGX Nifty too is pointing towards the same. The Index is currently trading 20 points up from its yesterday’s close. Indications are, the markets could open on a slightly positive note to cover up yesterday’s losses and seek further direction by mid-day once the trade balance numbers are out. Meanwhile, a keen eye on the developments in Ukraine will be the best thing to do in the present circumstances.