India’s Reserve Bank Governor Raghuram Rajan meets for the monetary policy review on Wednesday the 18th of December and the same day would also be the second day of the two day FED meet chaired by Ben Bernanke. The action taken and words spoken would determine how Indian markets and global markets fair.
Consumer inflation or retail inflation for the month of November was at 11.24% against 10.9% in the previous month. RR or Raghuram Rajan has been emphasizing that consumer inflation is key and he wants this to be controlled at all costs. To add to the concern further was IIP numbers which were negative at 1.8% for November. This negates whatever green shoots that were seen in the previous month. It is a foregone conclusion that with such high inflation, RBI would raise repo rates by 25 basis points. This is a foregone conclusion and barring some reaction post announcement, things would remain unchanged. If however he hikes rates by 50 basis points or keeps rates unchanged, there would be big swings in either direction.
Coming to the US, jobless data which was released on the 6th of December was quite encouraging and would in all likelihood provide ample proof for Ben Bernanke to announce some sort of tapering to the stimulus which has been provided so far. The tapering could begin as early as January and maybe just a beginning with the current $ 85 billion of bond buying being reduced by $ 5billion and then by another $5-10 billion and so on. Any such announcement of tapering would lead to a knee jerk reaction but things would stabilise and be viewed as positive in the medium and long term.
The markets had opened with a huge gap post the BJP victory and on expected lines made a new high. They corrected as sharply and closed with losses for the week. In making a new high they have made a huge gap between 21,049 and 21,416 on the SENSEX and 6,275 and 6,415 on the NIFTY. This gap area would act initially as resistance and once surmounted act as a support.
The central banks would decide the immediate short term trend of markets which would remain choppy. Traders would love the situation as opportunities to play swing on either side would be available. There would be clarity post RBI and FED meetings which though on the same day of 18th December make two trade dates due to different time zones. Wednesday and Thursday will be great trading days in the market.
