Rate cut probability diminishing on fiscal, current account deficits
The Nifty and the Sensex are likely to move up by about one to 1.5 per cent this week. The truncated week ahead is likely to see higher volatility levels.
It would be interesting to observe the behaviour of airline stock prices as domestic jet fuel prices have increased thrice since July 16.This would have an impact on their second quarter earnings.
The timing of a diesel price hike is keeping everyone guessing. The twin deficits –fiscal and current account along with the absence of open market operations – are decreasing the probability of a rate cut.
Government borrowing might increase in case drought relief measures warrant additional deployment of funds.
The benchmark 10-year G-Sec is expected to remain within 8.20 per cent and 8.30 per cent levels tending towards the upper end of the range. FII flows are likely to increase marginally and could take the rupee up against the dollar by about one to 1.5 per cent.
In the Euro Zone all eyes are on Greece, watching how the nation will manage to repay its debt held by ECB (Euro 3.2 billion), which is maturing this week. Though there is talk of substituting the existing debt with another short term debt, the jury is still out as funding from private lenders is ruled out.
If the deal goes through, then the Euro is expected to strengthen and breach 1.2450 US $ levels to a Euro. And the dollar index (DXY) could shed about two to 2.5 per cent from last week’s close of 82.596.
Better than expected US data has shifted marketmen’s focus from debt to equity. The 10-year US treasury yields are expected to remain range bound between 1.75 per cent and 1.90 per cent.
Nymex crude oil futures are anticipated to move higher by two to three dollars a barrel from last week’s close of US$ 96.01 to a barrel.
Finally gold is also expected to go up marginally by about a per cent. Last week it closed at US$ 1619.40 to an ounce.