Tuesday, August 28, 2007

Expect a 2% cut today

Lots of things have happened overnight, the negatives attached to the expectations of FED cutting the rates has started to play down the global markets now. FED had cut the discount rate by 50bps a few days back, and markets around the world had started expecting a cut in the main rates by FED for the first time in September. However, yesterday's FED's minutes have actually changed a lot on the speculation front.

Dow was down over 280 pts yesterday night and as i write this post, Hang Seng is down 500+ points. Nikkei is down 430 pts. So on an average all the ASIAN markets are down 2+% points. Its no doubt a rough morning for ASIA.

So what is it that is bringing the markets down again?? It all lies in the FED's meeting minutes which doesn't discuss about the rate cuts in September.
To my view, the markets are as of now discounting the views that FED will be cutting rates in September. If in case that doesn't happen, a big cut can easily be predicted.

Just checked the YEN and its at 114. This YEN movement i believe is dangerous. People talk about carry trade absence as far as the Indian context is concerned, however, in my view, its all about the sentiment. The sentiment attached to the news that YEN will keep appreciating, FED rate cut wont happen etc... Its for sure no good news.

In the last 4-6 weeks, the feeling i get is that Sub Prime or no Sub Prime , we should be prepared for bad news for at least another quarter from US. Its like a can of worms getting opened up. Yesterday's number on Consumer Confidence is also a disturbing number. Sub prime I believe is just one of the many problems on the way for US economy.

One of my friend with whom i discuss such stuff pretty often was of the view that we have bottomed out and fund inflow will now pickup. However, one thing that people often forget is that its a global scenario. We might not be getting a direct hit from Sub Prime issues or US going into recession etc.. but the real problem lies in the fact that there is huge amount of money managed by FII's and investment banks, and, when such money managers are getting sucked in, they have no point in holding the investments in India which are making the most profits.

A 2% cut in the Indices is for sure today... Lets see where we go from here. But again, before i sign this post off, I would like to reiterate the fact that next few days are important. Another bad news might take us back to sub 14k levels. My vote still stands against all those who say that markets have bottomed and tanked.

Play safe

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