The equity markets globally have been unusually buoyant past
couple of trading sessions.
Except for somewhat easier liquidity and stable INR noting seems
to have changed in domestic economy. Chinese export data suggests that Asia in
general might have further deteriorated. Recently all global agencies, e.g.,
IMF, World Bank, European Commission etc. have warned that emerging markets, mostly
BRICS, present greater risk to the global economy now, as compared to Europe
and US couple of years back.
US political impasse
US political impasse is only worsening from midterm perspective
and offers no sustainable solution. Even if they agree to enhance the debt
ceiling at the 11th hour and government starts working again, there
are enough indications that the US may continue to witness many recurrences of
stalemate in the remaining term of Barack Obama.
Anyways, in 2011 episode of debt ceiling break below supports
that led to accelerated losses in the equity markets actually took place once
an agreement was reached.
US President himself and many others have warned of that
financial markets will crash should the US Congressmen fail to enhance the debt
ceiling and pass the budget. This highlights the tenuousness of the economic
recovery that is riding on the back of the QE tiger.
The complacent financial markets remind us of the period between
August 2007 to January 2008, and the thought of what followed thereafter is
disconcerting.
A rise in US bond yields post debt ceiling hike will be the
first indicator that the buoyancy in equity markets is about to terminate.
Optical illusion in India
The current rally in Indian equities may mostly be an
optical illusion. The rally is driven by a handful of stocks, while broader
markets continue to languish. The domestic investors’ participation is
dwindling even at a faster rate. The number of stocks trading on daily basis is
shrinking, traditionally an indication of rise in number of vanishing companies
and deeply stressed companies. Volumes continue to remain low and
overwhelmingly concentrated in index option, giving the market a definite
“lottery” like outlook.
The inflation continues to remain sticky and manufacturing
weak. RBI’s next policy action shall logically be a 25bps hike in repo rate.
Remember, the governor had made it clear on September 19th
that (a) Inflation is the primary focus and (b) both MSF and repo rate will do
the walking. Now, as the inflation outlook has worsened further with late
withdrawal of monsoon and crop damage by Phailin, and MSF rates have already
walked down 125bps, its turn of repo rate to move up a bit.
A rise in US and domestic bond yields could moderate the
raging bulls in next couple of months.
....to continue
Thought for the day
“Sin cannot be conceived in a natural state, but only in a civil state, where it is decreed by common consent what is good or bad.”
—Baruch Spinoza (Dutch, 1632-1677)
Word of the day
Promulgate (v)
To make known by open declaration; publish; proclaim formally or put into operation (a law, decree of a court, etc.).
(Source: Dictionary.com)
Shri Nārada Uvāca
We all share the pain, misery and sufferings of the people who came in the way of nature’s fury – Phailin.
God will join us soon.
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