Into each life some rain must fall. – Henry Longfellow.
Monsoon has arrived in Kerala, but uncertainty persists over its progress. Last year, the kharif farm output was badly hit by dismal rains, though there was some improvement during the rabi season. The Indian economy held up pretty well in FY10 in the face of the global downturn and disappointing monsoon. The strong show could partly be attributed to Government stimulus and partly to the low base of H2 FY09. The Government is confident of 8.5% growth in FY11. That could be a touch ambitious given the emergence of a few headwinds.
High inflation, sluggish private consumption and a softening stimulus are some of key concerns. Interest rates will also head north though at a gradual pace. Exports could be hit by subdued global growth and the European debt crisis. One also has to see how fund flows play out. Still, positives outweigh the negatives for India.
We expect the key indices to open in red. Asian markets are clueless as Wall Street was shut overnight. European markets managed slim gains in a quiet session. The trend is likely to be choppy and rangebound. The NSE Nifty may consolidate between 4950 and 5120. It will find support at 4800 in case of a fresh selloff.
FIIs were net buyers of Rs5.86bn in the cash segment on Monday on a provisional basis, according to the NSE data. The local institutions were also net buyers at Rs737.7mn on the same day. In the F&O segment, the foreign funds were net buyers of Rs10.31bn.
Beginning of the new month means that we will get fresh manufacturing PMI data from across the globe. This particular data has been holding up well and may help restore investor confidence. Among the other data points to watch out for will be the monthly auto sales and the US employment report later in the week.
Stock markets in Japan, South Korea and Australia are all lower in early trading today, as Wall Street was closed for a holiday on Monday. Markets were also closed in the UK. Sentiment was dented by concerns that the Chinese economy may be slowing.
Chinese manufacturing expanded at a slower pace in May, adding to signs that growth may moderate in the world’s third-biggest economy.
The MSCI Asia Pacific Index declined 0.4% to 113.05 as of 10:37 a.m. in Tokyo, with more than two stocks gaining for each that fell.
Japan’s Nikkei 225 Stock Average lost 0.7% before a meeting between Prime Minister Yukio Hatoyama and Ichiro Ozawa, secretary-general of the ruling party, to discuss the party’s future. Hatoyama pledged appropriate action in the face of plunging approval ratings. Three polls released on May 30 showed Prime Minister Hatoyama’s rating at or below 20% and six in 10 voters think he should quit.
China’s Shanghai Composite Index lost 0.6% after a purchasing managers’ index showed the country’s manufacturing industry expanded at a slower pace in May. A newspaper backed by China's National Bureau of Statistics said that the country's official purchasing managers index was at 53.9 in May, falling from 55.7 in April.
Australia’s S&P/ASX 200 Index dropped 0.6%, while the Kospi Index declined 0.4% in Seoul.
Futures on the Standard & Poor’s 500 Index fell 0.7%, signaling a decline in US markets when they resume trading today after a holiday yesterday.
Exporters in Japan declined as the yen strengthened to 111.59 per euro today from 112.59 at the 3 p.m. close of stock trading in Tokyo yesterday, while appreciating to 90.99 per dollar from 91.52.
Asian markets were also focusing on the Reserve Bank of Australia's rate-setting decision with economists widely expecting the cash rate to be held steady at 4.50%.
In foreign exchange markets, the euro was lower against the US dollar and the yen in thin trading, partly weighed by lower Asian stocks. Traders said comments by the European Central Bank board member Christian Noyer also weighed on the euro and other currencies such as the Australian dollar.
July Nymex crude oil futures were up 50 cents at $74.47 per barrel.
German stocks outperformed other European rivals in the first reaction to a downgrade of Spain by Fitch Ratings.
The Stoxx Europe 600 finished with a rise of 0.3% to 244.79, led by automobile makers and technology firms. Shares of Mercedes-Benz maker Daimler AG rose 1.5% and shares of business software giant SAP rose 1.7%, as the German DAX finished with a rise of 0.3% to 5,964.33.
European stocks also got a lift from comments from Federal Reserve Bank of Chicago President Charles Evans, who said that Europe's debt woes could prompt the US central bank to delay raising interest rates, though he played down the impact of the crisis so far.
Spain's Ibex 35 lagged the broader market, ending down 0.8% to 9,353.30. Fitch Ratings cut Spain's sovereign-debt rating to AA+ from AAA after markets in Europe closed on Friday.
Greece's ASE Composite also closed lower, down 1.2% to 1,550.78. French stocks were also weaker with the CAC-40 down 0.2% to 3,507.56.
France's budget minister, Francois Baroin, reportedly told French television station Canal Plus on Sunday that keeping the country's own AAA credit rating "is an objective that is a stretch." He said that to keep the rating, the country has to carry out planned cuts in spending and cut its deficit.
Volume was thin on Monday, with US and U.K. financial markets both closed for a holiday.
US stocks closed weaker on Friday, weighed down by Spain's downgrade by Fitch. The Dow Jones Industrial Average closed down 1.2%. It was off nearly 8% from where it stood at the end of April, marking the worst monthly drop since February 2009.
Moody's still has a AAA for Spain while S&P has a AA. Standard & Poor's had already downgraded Spain.
All of Spain's most heavily weighted stocks were weaker on Monday.
Economic sentiment in Europe, that had been steadily improving from the lows of 2009, took a dip backward in May as concerns over debt burdens complicated the outlook for euro-area growth. Consumer confidence was particularly bad in southern Europe.
On Monday, the US dollar edged higher against the euro and yen, after ending May trading in North America with its biggest rise since October 2008.
In an interview, the European Central Bank (ECB) president Jean-Claude Trichet denied that an Anglo-Saxon conspiracy was to blame for the rapidly falling euro.
BP shares slid 7.6% in Frankfurt trading. The company is now facing a never-attempted measure to control the Gulf of Mexico oil spill, after its "top kill" effort - stemming the oil by pumping heavy drilling liquids into the well - didn't work.
Over the weekend, the UK's chief treasury secretary David Laws resigned over revelations about his parliamentary expenses. Laws, a Liberal Democrat, had been charged with finding cuts to public spending to tackle Britain's fiscal deficit.