Don't waste your time away thinkin' 'bout yesterday's blues. - Jon Bon Jovi.
Well, well, well, the bulls are Livin’ on a prayer. Just when equity markets were getting back into the groove comes another bolt from the blue. Moody’s has cut Greece's government bond ratings to junk. The Dow abandoned triple-digit gains to close lower. The euro, which regained some lost ground against the dollar, retreated from its daily highs.
European markets rallied on though as the Greek downgrade by Moody’s was announced after markets closed there. Asian markets are down, though not by a great deal.
So, at worst we could see a flat to sluggish start and a choppy session. There is some chance of a turnaround by the end of the day. While we expect the market to remain resilient, we advocate some caution given the uncertainties hovering around.
The good news is monsoon seems to be progressing gradually. With inflation jumping into double digits, every spell of shower from here on will bring relief. The sudden spurt in inflation has stoked some fears of a rate hike soon. However, given the fragile global environment, short-term liquidity crunch and a tepid credit growth, a rate hike may not happen before the scheduled July policy meeting. At least we are not in favour of such a move.
Among the other more positive news, St. Louis Fed President James Bullard, speaking in Tokyo, said he expects an Asian-led world economic recovery to continue, and that he didn't see evidence of a Chinese bubble. Nor did he think the European debt crisis was poised to derail the economic recovery.
FIIs were net buyers of Rs3.47bn in the cash segment on Monday on a provisional basis, according to the NSE data. The local institutions were net sellers at Rs414.3mn on the same day. In the F&O segment, the foreign funds were net buyers of Rs18.14bn. On Friday, FIIs were net buyers of Rs8.96bn in the cash segment, as per SEBI data.
US blue chip stocks reversed solid gains to close in the red on Monday after Moody's downgraded Greece's debt rating, underscoring persistent worries over the risks emanating from the sovereign debt problems in the euro-zone.
The Dow Jones Industrial Average lost 20 points, or 0.2%, to 10,190.89 while the S&P 500 index lost 2 points, or 0.2%, to 1,089.63 and the Nasdaq Composite index ended little changed at 2,243.96.
The euro rose versus the dollar, continuing to recover after touching a four-year low of $1.188 last week. The dollar fell 0.1% against the yen.
US light crude oil for July delivery rose $1.18 to $74.96 a barrel on the New York Mercantile Exchange.
COMEX gold for August delivery fell $7.60 to $1,222.60 an ounce.
Treasury prices fell, raising the yield on the 10-year note to 3.28% from 3.22% late on Friday.
Stocks gained in the morning after a report showed a big jump in industrial output in Europe, boosting the euro. But the advance lost steam in the early afternoon on news that Moody's cut its debt rating on Greece to "junk status."
Reaction to Moody's downgrade was mild as opposed to about six weeks ago when its rival Standard & Poor's had cut its rating on Greece's debt to junk. But, the fact is that Greece continues to struggle despite European leaders having made billions in loans available to the nation.
US stocks managed to recover at the end of last week and through early Monday afternoon on the back of improving corporate earnings and signs that the world's largest economy is recovering.
Volatility has not subsided a great deal due to light trading volume and lingering jitters about potential fallout from Europe's credit crisis. Also, the market has tended to switch direction of late in the last hour or 30 minutes of each session.
Composite trading in New York Stock Exchange-listed companies recently hit 4.6 billion shares. Advancers still outnumbered decliners by nearly two to one.
Trading volume has tapered off due to some traders taking summer vacations, while some long-term investors have backed away, awaiting day-to-day volatility to ease.
What we have seen over the last couple of months is a short-term correction, not the start of a bear market. The market may remain volatile for a while but s long as the euro doesn't collapse the stock market could gradually keep advancing.
US President Barack Obama reportedly wants BP to set up a fund to pay for damages from the leaking oil well, two months after the initial explosion. Lawmakers want BP to make as much as $20 billion available. But the British company may not be able to comply, as it only had $7 billion in cash on hand at the end of the first quarter and is currently expected to pay out dividends on June 21.
BP is expected to have discussed the issue of dividends at its board meeting on Monday. Meanwhile, its stock price continues to plummet, losing 9.7% to $30.67 per share.
No major economic news was released in the US, but reports are due later in the week on housing, wholesale and consumer inflation and jobless claims.Data from the euro zone showed larger-than-expected improvements, with industrial production up 0.8% in April, gaining 9.5% from a year earlier, the sharpest year-on-year increase since records began in January 1990.
The data helped fuel the euro's gains against the dollar. The shared European currency remained on the mend, climbing 1.1% to stand at $1.2245.
The dollar index, which tracks the US currency against a basket of six others, fell nearly 1%.
European shares gained as sentiment towards the global economy improved.
Starting a fourth straight week of gains, the Stoxx Europe 600 index rose 1.2% to 252.54. The French CAC-40 index advanced 2% to 3,626.04, the German DAX index added 1.3% to 6,125.00. The UK's FTSE 100 index lagged among the three, up 0.7% to 5,202.13.