Global cues may bring volatility to markets

K. RAGHAVENDRA RAO | Updated on November 13, 2011 Published on November 13, 2011

Expect a volatile week on the bourses this week, with all that has been happening and expected to happen. Though 10-year G-sec yields would more or less be range-bound this week — between 8.84 per cent and 9.03 per cent — there are indications that it could touch 9.15 per cent, if the Reserve Bank of India does not step in.

The RBI may indulge in open market operations and take control if the daily average levels of liquidity adjustment required remains at the Rs 1 lakh crore level or above. This means that the central bank will buy Government securities and pump in money into the system so that the net supply of G-secs goes down to address the liquidity deficit.

Any hot money FII outflow due to the Euro-zone crisis worsening could put pressure on the rupee and could take it to 51-level to the US dollar from Friday's close of Rs 50.11/50.12. Under such a scenario, expect benchmark stock indices to vacillate between 100 and 125 points on the Nifty and 450 and 500 points on the Sensex through this week, from Friday's close.

On the equity derivatives segment, expect a lot of noise in intra-day trade throughout this week because of uncertainty on the global front coupled with a slowdown in manufacturing and infrastructure sectors here. Nothing much might come out in terms of quantum and direction of movements.

Globally, this week is important for a variety of reasons. Italy, whose debt to GDP ratio touched 120 per cent, has been struggling to keep bond yields below 7 per cent. The mark, if breached, could add the nation to the list of Euro-zone countries asking for a bailout.

There is a school of thought emerging that Italy could go the Greece way, especially with respect the austerity measures that they are expected to follow. Prominent among the likely measures are the raising the retirement age for labour from 65 to 67, privatising State-owned companies and selling sovereign assets to raise funds. Finally, these measures were approved by the Italian parliament on Saturday.

This is the reason for mounting pressure on the euro that is expected to be in the range of 1.39–1.34 dollars to a euro.

Investors could again rush back to their safe haven — gold — which could move up by 10 to 15 per cent from the current levels of $1,770 levels for a troy ounce.

News of a possible NATO attack on Iran taking crude oil prices to $175 a barrel is highly unlikely and Brent crude is expected to be range bound between $101 and $91 this week.

There are some important data points coming in from all parts of the globe this week.

German GDP quarter-on-quarter data is expected on Tuesday and the Street is expecting a 0.5 per cent growth. Rate action from the Bank of Japan, expected on Wednesday, is forecast at 0.1 per cent.

Other forecasts that would flow in this week are the core consumer price index (forecast at 3.2 per cent) from Britain, the Euro-zone Zew November survey, a monthly indicator on economic sentiment (forecast at -55.3).

US October Advanced Retail Sales growth is forecast at 0.3 per cent, while the British jobless claims are expected to be around 21,000.

Other numbers expected are the consumer price indices of the US and the Euro-area. Forecasts have pegged them at 3 per cent and 1.6 per cent respectively.

Published on November 13, 2011
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