ChartPatterns & Technofunda analysis

Why the global markets fell so much ???

As the data in USA of jobs and economic conditions are becoming more favourable the bond yields are spiking up suggesting an increase in Interest rate going forward.

3 rates in 2018 are already discounted but market spooked on friday with better than expected jobs data which shows inflation could rise faster than predicted and which could perhaps raise the possibility of 4th cut which was the main concern of the markets.

Why global panic then ??

Since rates in USA to rise the outflows of USA till date will now again goto USA creating redemption pressures in global markets as Hedgefunds or Hotmoney which takes money for shortterm has to bear more interest cost which cost them much more as they generally are happy with 1.5 to2.5% monthly return by hedging funds, once interest rates goes up the cost of investment rises and so they redeem and go back to USA .

Generally dollar strengthens against other currencies of the world in this scenario which also triggers redemption for the same reason as cost of investment becomes expensive and other currecies weakning means lower % returns in terms of dollar…

Eg ~ if say FII bring 100$ at 64rs investment which is their cost, now dollar strengthens and rupee weakens to say 66/$ then say cost of investment still remains at same their investment would reduce by ((66-64)/64*100)= 3.125% . Notional loss of just holding

If they sell at cost also they will get only 96.875 for their 100 and so to reduce their risk they sell in countries where the currencies weaken against their $.

Therefore Equity markets which seem very lucrative and easy money making can be very dangerous and wealth destructing too if you dont stay cautious and dont book losses marginally which in future could erode your wealth.

Currently 10year USTNote is quoting at 2.841 up from 2.72 zones thats a quite a move. Above 3 incase it crosees and sustains global meltdown possible once.

At present it seems it could touch around this levels and retrace in shortterm but the second move would be need to be watched.

1 factor which could keep bondyield undercontrol is balloning budget of UsA which is rising , if controlled by the government with some measures no worries but if it goes out of control, govt. Has to issue new bonds with higher interest coupons because of rising debt. So thats the worry…budget deficit also called as fiscal deficit.

Everybody knows US budget deficit is balloning and will burst oneday in future but that is not the case as of now in immediate term.

Generally in bullmarkets everything rises equity crude commodities and last the bond yields….

Still euphoria in global market is not catchingup and one last rally of euphoric rally has to go up before any major crash to happen.

Bullmarket corrections are very fast and swift always which give impression of bear market but till index globally making new highs after the fall is on the bull market is on. The day when index fails to cross the highs and start making lower high – lower low thats the time of start of bear market.

We should stay cautious but not take our actions on preempting of any unseen things happen else we miss rallies which many are sti waiting from 8000 nifty levels.

Staying cautious is always good and booking out on profit/losses if you are very short term investor.


Categories: STOCKS