Global mkt correction shallow unless Fed hikes in Sep: Experts

The European markets and the US market in early trade on Monday opened weak post the sell off seen on Friday on back of fears that Fed rate hike was coming sooner than expected – may be in September itself.There were some hawkish noises from the Fed board members. In Europe too, Mario Draghi when asked if they would ease more, he said they were not thinking of more at this point, which led to spike in bond yields, and global equity markets started selling off, the dollar too strengthened. So is this start of a big global turmoil or will it be a shallow correction is the big question.To answer some of these doubts and the way forward for the market, CNBC-TV18 spoke to Manish Kabra, VP-European Equity & Quant Strategy, BoA-ML Global Research, Peter Hooper of Deutsche Bank and  Guy Stear, Head Emerging Markets Strategy, Societe Generale CIB.
Kabra said US market has been in the calmest period – for the last 42 days of less than two percent is the calmest period in eight years. So, even a small disappointment can bring about big reactions.

Although short-terms corrections are not impossible but the key is that long-term investors are still not fully involved in stocks and so corrections could be shallow.

On Fed rate hike, he said Janet Yellen hasn’t yet come out and spoken about a possibility of September hike. Moreover, when one looks at the global cycle lead indicators, there are still very few signs of improvement, so Fed may not hike. However, in case Fed hikes in September then it will be taken as a big negative at least for few weeks.

According to Stear, for some time now Fed has been saying that conditions were in place to raise interest rates but markets did not believe them. Now there is a bit of shift that Fed will do what they have been telling all long and hike rates. So, maybe markets are correcting and getting the weak performance out of the way beforehand instead of after the event.