Will Fed action boost Indian equities today?

Moneycontrol Bureau

The US Federal Reserve kept rates unchanged, extended Operation Twist and hinted and that it is prepared to launch a third round of quantitative easing if required. US markets had a volatile session on Bernanke’s comments. Key indices initially slipped after a Fed policy announcement, but regained ground on hopes that the central bank was laying the groundwork for more monetary easing. However, they fizzled out towards the end of trade after Bernanke’s news conference.

European shares closed higher in choppy trading yesterday. All eyes on the eurogroup meet today which is likely to address the EU bailout fund to buy European debt.

Indian equities traded in a tight range yesterday, but ended in the green. The Nifty closed flat above the 5100 mark, while the Sensex gained 36 points.

Also listen to the accompanying audio for more pre-market cues..

Currency Corner

The dollar index held on to the 81 mark yesterday, while the euro stayed stable around 1.26 to the dollar.
 
Back home, the rupee closed at a record closing low against the dollar, on big demand from oil companies, below the 56 mark.

Commodities

Lack of QE3 triggered a crash in Brent crude prices, which nosedived below USD 93 per barrel. Nymex crude too saw sharp declines, falling to USD 81 per barrel, its lowest since October.

In precious metals, gold prices also dipped, after no additional easing was announced by the Fed, to USD 1600 per ounce levels.

Global Cues

The big news that's been moving global markets is the Fed action overnight. The Fed, following a two-day meeting, said it would continue "Operation Twist" through the end of the year at the current pace. Seeing a further slowdown in the US economy, it hinted that it is prepared to launch a third round of quantitative easing, or QE3.

Ben Bernanke announced a six month extension for Operation Twist, infusing additional USD 267 billion into the economy. He announced a cut in GDP forecasts to 1.9% from the earlier 2.4%, and reduced the unemployment forecast to 8% from 8.2%.

However, the Fed was not the only central bank in focus. A European Central Bank board member yesterday hinted that a rate cut could be on the cards. The ECB has kept its main interest rates at 1% since December.

Also, minutes from the Bank of England's June meeting shows that four of the five policy setters, including the governor himself, voted for more quantitative easing. Analysts say it points towards a swing to more QE at the BoE's upcoming July meeting. 

In some key events to watch out for today, EU finance ministers are set to meet in Luxembourg today to address calls to allow the EU bailout fund to buy European debt, an idea that Germany is opposed to. Reports indicate that officials aren't likely to agree to any new terms for Greece's bailout but could release one billion euro in bailout cash. Meanwhile, analysts say that Spain and Cyprus could formally ask for aid at the meeting.

In key economic data to watch out for in US today, weekly jobless claims is expected to come in lower at 383000 compared to 386,000 last week.

Meanwhile, Spain's budget minister dismissed the idea of Madrid seeking an international bailout. The initial results of the first stage audits into Spain's banking system are due today. The second more detailed order should be completed by end of July.

Stocks in News

In negative news for broadcast companies, the digitalisation deadline has been put off by four months. The digitalisation of cable TV services in four metros will now be on 31st October instead of July 1, when it was originally scheduled to be introduced. 

The decision to defer the plan for switchover from analogue to digitalised signals was announced by the government as it was found that the metros of Delhi, Mumbai, Chennai and Kolkata were not ready for it.  All the TRAI regulations for digital addressable system will now come into effect from 1st November, 2012.

The government is likely to impose a 21% duty on imported power equipment. 5% will be a basic duty, 12% countervailing duty and 4% special additional duty.

The Business Standard reports that L&T, Tata and HCL are in race for Rs. 10,000 crore defence deal, for which they will compete against Bharat Electronics.

India’s largest public sector lender SBI may reduce its lending rates to exporters soon. SBI has said that the RBI may cut policy rates in FY13 to boost growth, and that it sees loan growth at 16% and deposit grow at the rate of 20%.

The Mines Ministry has informed the EGoM that the government will dilute its stake in HZL and Balco to Sterlite Industries soon. The government has 29.54% stake in HZL and 49% in Balco.

Anisha Mappat
anisha.mappat@network18online.com