Market slipped into red at the last hour

Equity Markets closed on bad note by the end of day , today being expiry in F&O was bit amused at the lightening speed by which market changed direction from Green to Red in mater of few mins.

Vertical Drop in Nifty

 And this is what happened at Reliance Counter at around the same time.

 A More Detailed look at the time span and the Volume in Nifty .See the Slide in Nifty started from 2.55 pm.
And also i am bit surprised on the volume in Nifty at the end of day , still i have doubts on the contributions to huge volumes at last few minutes of trading

Here is what happened at the reliance counter at the same time around 2.55 pm , Infact its the other way round , since this slide happened at the reliance counter i believe entire market went into some sort of panic mode for few mins.

 Its obvious since of the all 50 stocks in Nifty50  reliance stock  having maximum weightage in Nifty we can expect this sort of correlation . It only amused me cause being today a expiry day and market tanked in few mins made me to believe that market participants are  trading more in heavily traded and large cap companies.

I haven't seen the rollover into November series may be will try analyze. I guess November will be a Make or Break for Markets.Will try to post another before QE2 comes

QE2 is coming...This November

Now a Days its mostly debated about QE2 across the boards and its implications on world economy.QE2 is nothing but Quantitative Easing a form of monetary stimulus which involves buying bonds from public.

Who is doing this ?  Managing the Federal Reserve's Balance Sheet

The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis.

 QE1 happened during crisis and they reacted in a number of ways,like purchases and reducing fed rate to near zero (0.25%) etc..

So what will happen if it buys back bonds from public?

The aim is to drive up the prices of long-term bonds, which in turn would push down long-term interest rates. It hopes that would spur more investment and spending and liven up the recovery.

The announcement is expected to be made at the conclusion of a two-day meeting of its policy-making committee next Wednesday.

So what are its implications?

 Growth will stay below trend, inflation below target and unemployment uncomfortably high—albeit with reduced risk of a double dip. For the Fed to come close to fulfilling its dual mandate of full employment and price stability, QE3 or QE4 may be needed in 2011.

 How about EM are like India?

EM is the main focus of the U.S. capital outflow. Leveraged carry-trades may pause for breath now that so much has been priced-in, but the real-money portfolio shift is likely to continue, causing near-term out performance, but sowing the seeds of future bubbles.

The talk of Fed going for QE2 brought huge inflows into indian Equity markets with FIIs investing a record $6.11 billion in October 

"FIIs see better rate of returns in emerging markets and India is set to attract a disproportionate share of inflows," Reliance Mutual Fund's head of equities Sunil Singhania said

 But with this FII flows its  obvious that rupee will appreciate and this inturn will hinder growth in exports which can be a cause of worry in near future.

           No FII inflow cap, but Re checks possible: FM

At this time, I am not thinking of putting any cap on FII (foreign institutional investment) inflows.

 The government ruled out curbs on foreign portfolio investment into the equity market, but said the central bank may intervene in the forex market to check rupee appreciation that was hurting exports

The current levels of capital inflows, which exceed financing requirements of the current account deficit, have put pressure on the rupee, resulting in its appreciation over the last few months.


The RBI has already expressed concerns over rising capital flows, which could further increase after further monetary tightening, which looks imperative in view of the sticky inflation.

Lets welcome November we will see a new game across countries related to forex,interest rates.inflation,unemplyement.

HSBC India Services PMI-Economic Indicator

 About the PMIs
Purchasing Managers’ Indices (PMIs) have been specially developed to provide economic analysts, purchasing professionals, business decision-makers and policy makers with accurate and timely data to help better understand business conditions. In particular:

• central banks in many countries use the data to help make interest rate decisions;
• analysts in the financial markets use PMI data to reliably forecast official data such as GDP;
• forecasters and planners in the corporate sector use the PMIs to help anticipate changing business conditions and to benchmark performance.

The indices are based on monthly questionnaire surveys of carefully selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing, construction, retail and service sectors.

The HSBC India Services PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 350 private service sector companies.

The HSBC India Composite PMI is a weighted average of the Manufacturing Output Index and the Services Business Activity Index, and is based on original survey data collected from a representative panel of over 800 companies based in the Indian manufacturing and service sectors.

Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the ‘Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion' index. This index is the sum of the positive responses plus a half of those responding ‘the same'.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.


October Month PMI report

Growth of activity in the Indian private sector economy slowed to weakest pace in
ten months in September

India's service industry is stepping off the throttle. Along with the manufacturing sector, growth is slowing, although the expansion continues. Price pressures, however, have not eased meaningfully, which represents a challenge for the central bank. The pace of hiring has slowed as well,even if it remains in positive territory. All this suggests a mild easing of demand growth since the red-hot pace earlier this year, but is hardly enough to relax the guard on inflation. Monetary officials may still need to tighten further to avert price pressure from becoming entrenched

It shows the growth which happened from the start of this year is slowing a bit and next month report will give a confirmation for this trend.With the Hot money coming into India it will be tough task for RBI to maintain exchange rate ,interest rate and inflation all Hitting at the same time .

What is Beige Book

There is economic indicator called Beige Book.It is a  report published eight times per year and Two Wednesdays before every Federal Open Market Committee (FOMC) meeting.

Each Federal Reserve Bank gathers informal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.

The Beige Book report is a lagging indicator, in that it is a report of what already happened in the districts, not what the Fed Districts think is going to happen. On the other hand, many economists consider it a leading indicator, in that it could get the Fed to change the Fed Funds rate which is, in itself, a leading indicator

Reports from the twelve Federal Reserve Districts suggest that, on balance, national economic activity continued to rise, albeit at a modest pace, during the reporting period from September to early October

 Latest beigebook

The Beige Book aims to give to give a broad overview of the economy, bringing many variables and indicators into the mix. Discussion will be about things such as labor markets, wage and price pressures, retail and ecommerce activity and manufacturing output. Investors can see comments that are forward-looking; the Beige Book will contain comments that look to predict trends and anticipate changes over the next few months or quarters.


More can be found at this location:
http://www.investopedia.com/university/releases/beigebook.asp

FII's are Holding the Frontiers and DII's on a Killing Spree

My Recent posts on FII vs DII positions are the below links

September 15th : 19000 crossed...Whats next for Markets
July 4th : FII and DII investments in India
May11: Buying and Selling of FII vs DII

As we are now into 20000 need to look the flow direction and it looks like the flow direction from DII side is not changed as well as flow of funds from FII side is not changed.


FII flows into Indian Market is very Strong and this led to NIFTY cross 6000 mark,as FII believed India has growth story even when the rest of world is struggling and this led to more funds coming into India.I think the same Thing happened in 2007-2008 times before we came crashing down due to liquidity crisis. And this time chance of happening the previous crisis is very less cause there is abundant liquid in market .

At the same time governments across the world(US,EU) are ready to put more work at there printing presses.Especially US going for QE2 which might increase global liquid and there is good possibility that FII might be attracted and pour money  into EM which has growth story and specifically India.But there is a small tension across the rooms of currency war brewing in some parts of world, investors need to be cautious before they go for full fledged war

DII are on selling spree for a very long time and it looks like they aren't tired for now and especially the month of October the net position is very huge on negative side

Now comes  another intresting question? who are these DII which are on selling Mode in Indian Market.

For one thing DII are local people and they know the local conditions and there companies much better than FII. But when FII are Buying mode why are these people on selling mode.Yes one can understand that valuations might be a little stretched and they dont want to take risks or they might be taking profit and churning the portfolia. 

If thats the case why Retail investors are pulling money from MF from very long time. Is it purely because of SEBI banning entry and exit loads on MF products and distributors not selling them. I strongly believe that retail investors are bit intelligent and they know the mistakes they have done in past and looks like there are redeeming there units from MF as market looks a bit stretched .I don't have Data to support this. But my friend with whom i had a heated arugment will provide data for me:).

Will post on this more some time later 

Emerging Market Economies Leading Global Growth...But for how long?

Over the weekend lot of discussion happened at IMF,Washington DC and below RBI governor's comments on Role of Emerging Economies Going Forward and Key Policy Challenges

Here he talks about the Role of Emerging markets played in pulling the global markets from near depression and how its going to make impact to the rest of world going forward.

I guess when the EM was at peak in 2007  and rest of developed countries at the start of downward direction i  remember few saying that EME are decoupling from the rest of developed economies and EM will go up..but what happened  after that...every one knows....and same set of people after the crash in 2008 said that EM are  recouping with the rest of the world....Now fast forward from there to 2010 the same set of people :) are again started to say that we are decoupling again from the rest of the world..as rest of world is still struggling from the wounds it got from the crash and are growing near 2 % to 3% when EME are going at near 8% to 9% .

So how is this happening ? Basically there is plenty of Liquidity across the developed nations which is sitting idle as there are very less opportunities in there regions for growth so a whole lot of money is being pumped to EME. Now Question is how much more can they pump into these economies? It depends if US going for another round of QE2 (probability of happening this is high...as there wounds are not healed enough...same with the case of EU....) then i strongly believe that EME are going to see huge inflows which are never seen or heard. At least in India FII inflow is going to touch 1 trillion for the first time..

Another question coming to my mind..What if due to a policy decision are another unknown reason if money starts flowing out of EME..what is going to happen? Ob..markets and economy as such will go in South direction.

But before that happening can our regulators or persons with power can make some decisions to arrest the flow if such kind of event happening in near future and RBI governor said this at IMF over weekend

Furthermore, in evaluating the level of reserves and the quantum of self insurance of a country, it is important to distinguish between countries whose reserves are a consequence of current account surpluses and countries with current account deficits whose reserves are a result of capital inflows in excess of their economy’s absorptive capacity.

India falls in the latter category. Our reserves comprise essentially borrowed resources, and we are therefore more vulnerable to sudden stops and reversals as compared with countries with current account surpluses

I doubt it...cause one reason might be RBI going soft under the pressure from Ruling parties and key allies  are going for elections in some states...

It would be interesting to watch the policy makers game on tacking inflation,BOP and Exchange rate  in coming days ...

Competitive Non Appreciation?

It has been two months since i last posted something on exchange rate stuff...but off late things are heating up across the Central Banks about related to currency.Almost all the developed economies are struggling to reduce the unemployment rate and trying hard to increase there GDP rate.

 They attribute much of current exchange rate stress is emergence of china and its willingness to peg Yuan to American dollar at a undervalued value. Which is giving unfair advantage to Chinese producers to export more out of china and making other countries suffer job loss and loss of export competitiveness 

 Here are the comments from Secretary of Treasury Timothy F. Geithner Remarks at the Brookings Institution

Two years ago, the world economy was in the grip of an economic crisis on a scale not seen since the Great Depression.The United States and its partners in other leading economies, in an unprecedented feat of peacetime economic cooperation, joined forces to launch a powerful, dramatic response.    

Together, we put in place a powerful program of financial support – classic fiscal measures of tax cuts and investment, combined with monetary policy actions by central banks, and a variety of creative actions to stabilize our financial systems – to bring the global economy out of freefall and on a path to growth. 

We mobilized hundreds of billions of dollars in financial support for and through the international financial institutions for investments in emerging and developing economies.We committed to keep markets open to trade and investment, and together we honored that commitment in the face of strong political pressure.

We passed sweeping reforms of the U.S. financial system, and the world's central banks and supervisors reached agreement just two weeks ago on a very tough set of global standards for capital to limit leverage in the major global financial institutions. 

He is talking about Basel III norms which got finalized some time back and here is the link of my previous post to understanding-basel-iii-accord

These decisions required considerable trust and political resolve.  And they have been effective in restarting economic growth and stabilizing financial markets.  Global trade is now almost back to pre-crisis levels.

Look at the Baltic Dry index over which tracks the movement of ships in Sea which is pseudo indicator for economic activity or trade happening and clearly its not up to the levels of pre-crisis 

Each of our economies is stronger today than would otherwise have been possible, because of the effectiveness of this joint strategy. And the financial reforms now underway will substantially reduce the risk of damage from future financial crises.

Financial reforms which they made are just delaying the crisis and passing it on to future. Reforms in fact made money into pockets of rich and as long as Global imbalances are there we can expect another crisis any time from now :)

The Growth Challenge

What are the main challenges ahead?

The most important policy question we confront together is how to strengthen the pace of growth and repair, and how to do so in a way that provides the basis for a more balanced and therefore more sustainable global economic recovery.

I guess he is talking about the employment growth which is not happening in US can be seen in the latest ADP report  which says The decline in private employment in September confirms a pause in the economic recovery already evident in other data. 

And that is what is worrying economists across the globe as they think this is period is growth led recovery with no improvement in unemployment. Which is very dangerous and crisis may be back with a bang if this continues  

This is not a challenge that is best resolved by nations acting independently.  In the heat of the crisis, we all recognized that our actions would be more powerful if we acted together.  Even though the most dangerous part of the crisis is behind us, we are still in a place where we can achieve better overall growth outcomes if we make policy in a cooperative framework.

 a few suggestions on the policy challenges ahead in three areas: growth, exchange rate cooperation, and reform of the architecture of economic cooperation.

First, on economic growth.  The IMF forecasts the world economy will grow at a respectable annual rate of around four percent in 2011.  Growth is very strong in many of the major emerging economies.  In the major advanced economies, however, output and employment are still substantially below the pre-crisis levels, and the pace of recovery has been slower, with economic growth now running at a pace that is close to potential growth rates and not rapid enough to repair quickly the substantial economic damage remaining from the crisis.

Economic recoveries that follow financial crises are typically slower than those that follow other types of recessions.  This is because of the headwinds to growth that are generated by the necessary adjustments in asset prices and in reducing financial leverage.  As financial institutions rebuild their balance sheets and households reduce debt and raise savings, spending is slower to recover.  Firms, cautious after being burned by the financial panic, are less willing to invest and to hire because of uncertainty about future strength in demand for their products.  

The greatest risk to the world economy today is that the largest economies underachieve on growth.  We need to continue providing well-targeted support for the recovery in the near term even as we put in place plans to help ensure fiscal sustainability over the longer term.

And for the recovery to be sustainable, there must also be a change in the pattern of global growth.  For too long, many countries oriented their economies toward producing for export rather than consuming at home, counting on the United States to import many more of their goods and services than they bought of ours.

From here on he started talking indirectly about China and other developing countries 

The United States will do its part to achieve this adjustment.  Private savings have increased significantly, and, as the recovery strengthens, we will bring down our fiscal deficits to a sustainable level.

But as America saves more, countries overly reliant on exports to us for their own growth will need to change their policies, or else global growth will slow and all of us will be worse off.  Countries that chronically run large surpluses need to undertake policies that will boost their domestic demand.

I guess he is specifically talking about Chinese policy of keeping Yuan undervaluation and there by giving added advantage of Chinese exporters. How can too much export oriented markers like china ,japan increase domestic demand? I only knew of one thing which is lower taxes and there by keeping more money in public pocket and asking them to spend . Other than that anything else? no idea for now

That brings me to the second policy challenge: we believe it is very important to see more progress by the major emerging economies to more flexible, more market-oriented exchange rate systems.  This is particularly important for those countries whose currencies are significantly undervalued.

Like China which is pegging its yuan to dollar at a fixed rate from 2004 and here is the previous post related to it  basket-band-and-crawl-(BBC)

This is a problem because when large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same.

Yes looks like when China can do this why cant i do (JAPAN). Japan recently made jump into the bandwagon of group which is depreciating there currencies there by giving advantage to there export oriented companies. This is one kind of protectionist measures which are illegal according to WTO conventios

This sets off a damaging dynamic, described first by my former colleague Ted Truman, as "competitive non appreciation." Over time, more and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies. The collective impact of this behavior risks either causing inflation and asset bubbles in emerging economies, or else depressing consumption growth and intensifying short-term distortions in favor of exports.

This is a multilateral problem.  It is unfair to countries that were already running more flexible regimes and let their currencies appreciate.  And it requires a cooperative approach to solve, because emerging economies individually will be less likely to move, unless they are confident other countries would move with them.

Japan acted on its own without a coordinated effort  into the currency market  for the first time in six years, buying dollars to weaken the surging yen  

This problem exposes once again the need for an effective multilateral mechanism to encourage economies running current account surpluses to abandon export-oriented policies, let their currencies appreciate, and strengthen domestic demand.  This is a necessary complement to the adjustments being undertaken by countries running current account deficits.  A cooperative re balancing of policy in this direction would be better for overall growth.

 An an attempt to fight off worsening deflation and prevent the economy from falling into another recession, the Bank of Japan (BoJ) announced its largest foray yet into the realm of quantitative easing (QE).

This issue was well-known to the group of economists who gathered in Bretton Woods, New Hampshire, to refashion the war-ravaged global financial system in 1944.  The Articles of Agreement of the IMF, drafted at that conference, contain a now-obscure paragraph calling on the Fund to issue reports on countries with "scarce currencies"--what today we would call countries running persistent surpluses--"setting forth the causes of the scarcity and containing recommendations designed to bring it to an end."  That clause now reads like a relic of a bygone monetary era.  But the problem it was drafted to address--the threat to global financial stability posed by persistent, large surpluses--is as salient today as it was then.

This brings me to a third issue on the international agenda, the reform of the architecture of economic cooperation.

The Framework, called the "Framework for Strong, Sustainable and Balanced Growth," was designed to create stronger incentives for rebalancing growth, as the world recovered from the crisis, with higher savings in countries like the United States, complemented by reforms to strengthen domestic demand in surplus countries like China, other emerging economies, Germany, and Japan.


We agreed to pursue these two paths in parallel.  Each involved a change in the rights and responsibilities of the major economies, both emerging and advanced.

We have moved aggressively to do our part to help bring the world out of crisis.  We are working very hard to repair our financial system, to fix what was broken, and to reduce the future risk of financial crises here at home.  We have seen a very significant increase in private savings by households.  Our external deficit has fallen sharply, and we are financing at home a much larger share of the fiscal deficits we inherited.

We still have a lot of challenges ahead of us to strengthen growth and to restore fiscal sustainability.  And we expect to work closely with Congress in the months ahead on how best to move forward.   

 Mr. Geithner said that “China will be less likely to move, to allow its currency to appreciate more rapidly, if it’s not confident that other countries will move with it.”

His warnings were echoed, in crucial respects, by the I.M.F., which released its latest World Economic Outlook on Wednesday.

sources:

http://www.morganstanley.com/views/gef/index.html

http://www.imf.org/external/pubs/ft/weo/2010/02/index.htm

http://www.underpaidgenius.com/

http://www.brookings.edu/