Mkts may trade lower today

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS US stocks plunge on weak job growth US stocks advance higher on mixed economic data Fed’s Beige Book sinks hopes for rate cut send stocks lower ALSO READ See what other CNBC-TV18 anchors have to say Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

It's Monday morning but it's not very sunny because we had a bad fall once again in the USA on Friday night which means this morning Asian markets are not looking particularly strong. It's not the end of the world. It's not like a complete collapse but 1.5-2% cuts across Asia so may not have a good start for our markets here as well. Last one week to go as we head towards 18th that very important Fed meeting

 

Rough day ahead:

 

It will be a rough morning but I don't know about rough day because if global markets tend to bounce back nowadays after the initial cut from the US markets so you don't know whether the whole day will be bad but at least the morning will for sure, the big question is whether we can pull back some what in the afternoon and what the market is making of this whole set of data which is coming in, whether its prepared to read this as a one-off jerk in the US markets or its getting the feeling that things are beginning to fester even for the medium-term.

 

The answer to whether the market can pull back later this afternoon, in the next few days depends squarely on that. If this is read as just a one-off sell off in the US markets then there may not be too much pain.

 

On Asian Markets :

 

It's a bit difficult across Asia though some markets like the Hang Seng has come off the lows of the day so of the Nikkei so has the Nikkei 1.7% down, China is recovered from the lows, Straits Times still down almost 2%, Kospi has taken a hard knock of 2.5%. Hang Seng's recovered and is down less than a percent now, Indonesia is down about 1.8%. 

 

So down but not quite out is what sort of describes the Asian markets well this morning.

Global cues:

 

The data points are not looking very comforting. Now one is in a situation where you are looking at everything around the September 18, so maybe all views are sort of hinging on what the data point actually would lead the Fed to do but if one just sits back and not look at or focus completely on that Fed meeting and ask yourself what is going on in the US, one will probably have to admit that the things are not looking good at all out there.

 

People are still going with the no recession theory but the data points are not very comforting. Alan Greenspan is also making some disturbing statements and again you are getting those technical factors like the Yen going back to 113 etc so things are getting tossed up.

 

A couple of experts were saying that we will go back and retest the lows that we saw in August now whether this today's fall or what you will see from the next few days is an indication that the process of unwinding of that rally is happening or beginning to happen, is premature one doesn't know. It could be just a one off and maybe emerging markets bounce back later in the day and this has dismissed just at one more scare from the US market which would make it the third time running in the last fortnight or so.

 

It is entirely possible that in scheme of near-term decoupling the markets have been showing you probably do not fall as much or maybe not fall too much over the next couple of days in response to what has happened to the US on Friday but if you are watching where things are proceeding in the US then you have to feel a little worried because rate cut or no rate cut, the US seems to be heading towards a near recession like situation, though most people are still saying that maybe that recession kind of situation will be averted because if there is a recession then things won't look very pretty in any market across the world at least for a while. 

 

Emerging markets and the Fed meeting:

 

The Fed meeting is relevant, its just that the expectation bar just got lifted, If one looks at the non-farm payroll data, that's not a good data point at all. Now Goldman Sachs which has over the weekend said that now we expect 50 bps, 25 bps wont do and you have heard so many commentators over the weekend talking about the fact that the Fed now not only needs to move for sure but it is not only 25 bps now its 50 bps.

 

So now you get back to the drawing board and ask yourself whether the market will merely be happy on the 18th if a 25 basis points cut is delivered, so that is pretty much expected now if that doesn't happen it might be a catastrophic kind of fall in the global markets situation.

 

However if its only 25 bps then the market might actually not celebrate and just sulk on the corner and say the situation is quite bad they should have done 50 bps and if they do 50 bps there will be a lot of people who will be sitting on the sidelines asking Is the Fed panicking? Why 50 basis point? - They could have done 25 bps and then 25 bps later. The fact that they are doing 50 bps probably tells you that they are panicking and they know more than we know at this point in time.

 

It depends on what kinds of eyeshades investors in the markets are wearing while interpreting all this data and what happens on the September 18. But I think we are moving towards a potentially murky kind of situation in one-week's time because expectation bars are being raised, data points are consistently weak and you just don't know what the Fed will do and where this economic weakness is heading.

 

It's a bit of a flux kind of situation. Hopefully we will finally end up with the best situation, which is the US slows but does not go into the recession and the Fed cuts rates which means more money comes into the emerging markets that would be the best situation but that's maybe wishful thinking too.

Will we fall in tandem with the rest of the markets and then begin some kind of recovery for ourselves?

 

It is entirely possible because you have seen, the markets actually being very resilient to US market falls. One of these times, if the market does have another leg of correction left which cannot be ruled out totally then at some point, some of these weak global cues will translate or peg you back into that corrective groove.

 

You have heard a lot of people saying maybe we go back and retest the August lows, I do not know whether that will happen but if it has to happen then one of these times when the global markets tank, we will not be able to bounce back so easily. I do not know whether that happens today, there is an equal chance that we fall and then recover like some of the Asian markets are trying to do and that would be fair enough but if it gets into a difficult kind of situation for the global markets leading up to the September 18 and after that and then you get a bit of a scare which see some money going out of the markets globally as we saw in August then maybe that wave of correction might come through.

 

I think just on the evidence of Friday's fall and what we are likely to see this morning, I do not know whether you can take a safe call or assumption that the market is beginning to move or get into that next leg of that correction which could potentially take it back to the August lows.

 

I do not think you can make that assumption. So taking a big shot after a gap down might be fraught with hazard. Do you buy the first dip, it's worked the last couple of times but I do not know whether that would be a great trade. Maybe we have come to that situation where we had a good rally from 4,000 to 4,500, maybe one has made some money on the way up and now that the volatility is coming back in the global space maybe one is better off leaving the next 100 points on the Nifty.

 

On the way up on the way down maybe it is time not to get too cute and trade the gap ups and gap downs and just see how global markets are moving in the next five days to the September 18, even if that means leaving 100 points away because we maybe on the cusp of a slightly bigger move which you do not know quite yet.