This could be an important morning for trade. The Fed has delivered no surprises. The market was expecting 25 bps cut; so no great joy for Asian markets. The world is in a bit of a tizzy right now, with crude and gold prices going up.
This could be an important morning; there’s no reason to sulk nor party on the Fed front.
The question today is can we get back to the 20K levels and close above that?
On today's trade:
It is important morning of trade, the Fed has spoken and delivered no surprises, 25 bps what was the expectation, and 25-basis points is what the market has got. So no great joy in Asia as such. They are all holding small and modest positive gains, the US market moved up yesterday perhaps more on the GDP numbers, which came in rather than the rate cut. And of course the world is in a bit of a tizzy this morning; gold is at USD 800/ounce, crude is at USD 96/bbl, so commodities are blowing out and that’s the backdrop after ending earning season that we opened trade this morning. It could be important morning of trade.
So might equity and India with that get left behind a bit?
Don’t know. I think there is no reason to sulk as such but no reason to party either. We have got pretty much what the market was expecting. Asia is not making a whole big deal of it. So today the test is whether we can get back above 20,000 and perhaps try and close above that because we have not been closing above that 20,000 mark; let’s see if we can do that today. But now all the triggers are out of the way; earnings are out, monetary policy gone, Fed has spoken so now one would probably look forward and ask what is the next trigger from here and whether left to itself the market can climb even higher levels.
I don’t know the answer to that but right now this morning there is no reason to feel pessimistic, nothing to feel very euphoric about but one needs to watch the environment little bit the way some of the asset prices are moving and darting around us so interesting morning of trade. I think we will start okay but later in the day lets see what’s in store for us.
Asian Indices:
The US was up after the Fed cut rates and good GDP numbers came in but Asia has not made a whole lot of it; the Nikkei is up just a bit given up much of those gains, China is actually in the red as is Korea, Straits Times just holding on to a slender half a percent gain and the Hang Seng is up 1%. So mixed reactions from Asia this morning to what the US Fed has done.
Key takeaways the FOMC meet and global cues:
There are two ways to read it, depending on how you approach it. I think the first figure, which you should read is that the US GDP actually grew by 3.9%, which perhaps is an important underpinning on the Fed saying that they may not move further from hereon.
So if you an emerging market investor or if you are looking at Asian markets or India, the question that you need to ask yourself is, what would you rather have at this point in time, would you have a situation where the US does not go into recession, is that a great scenario for you or are you totally dependent on more rate cuts here to get more money to emerging markets of Asia.
That is the tradeoff that you are playing with, and my sense is that if you have a situation where in the next six months you figure out that the US is not going into recession, and rates do not go down much more from hereon, we are still fine because the growth is here in this part of the world. It’s really a folly to think that; money will only come into Asia and emerging markets and India if the Fed keeps on cutting rates.
That might actually on the margin fuel some of the liquidity, which comes in immediately after the Fed cuts rates because that kind of money does slosh around in the world. So I am not disputing that, Fed rate cuts are good for emerging market flows, and flows into other riskier asset, that is true. But I don’t think that is a complete condition on which flows to this part of the world hinge.
There would be an air of disappointment today across Asia for a lot of people who believe that maybe the Fed does not cut rates from hereon, and then what happens to the copious amount of money, which was coming into emerging markets like ours, but my guess is that the situation you need to avoid from an emerging markets perspective is the US recession, and the US GDP data was quite encouraging in that light.
And in the next few days whatever happens today the markets will come around to feeling that okay the US is not going into recession, we will still get money because we are the good guys who delivering growth, so we don’t need to worry too much.
But just in the near-term, the near-term knee-jerk reaction might be that, oh gosh they maybe done with rates because the US GDP is growing and if the economy is fine, do they need to cut too much from here. And so there might be a tinge of disappointment just in the near-term on the feeling that maybe rates will not go down from here.
But medium-term this is a good scenario; no US recession even if there are not much by way of rate cuts, we will still get money because the growth is in this part of the world. So don’t know about tomorrow or day after, medium-term we are still okay.
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