Global equity markets are showing nervousness over looming global recession. Dow Jones Industrial average, after testing all-time high, had tumbled and moved below its 200-day simple moving average. The S&P 500 VIX which is used to track the investor’s sentiment is at a high of 21, suggesting a weak outlook for the market. VIX tracking S&P 500 investor sentiment should be below 11, for a bull market.
German, Hang Sang equity markets are also showing signs of weakness and it also started in a weak note last week. The story in India also has no exception, indices have started moving below its respective 200-day simple moving averages.
Now let us check the metal prices, gold has made 6 years high and it is well above $1500 per ounce and its sister metal Silver is also making headlines and it is above $17.2, on sustained buying from investor for the purpose of risk reduction. On the other side the industrial metal, copper, lacking upward momentum and is trading multi-month lows suggesting weak industrial demand. Crude started correction and is below $56 per barrel.
US dollar showing strength against a basket of currencies, the rupee started falling and it could test further lows against the dollar in the days to come. USDJPY closed above 105 on renewed fear of recession. Chinese Yuan also depreciated against the dollar.
Industrial output growth in China is tested a 17 year low, geo-political tensions between US and Iraq, US and North Korea, Japan and South Korea, India and Pakistan, Israel and Iraq, Iraq and Nato alleys, cold war between US and China and Domestic tension in Hong Kong are further fuelling uncertain financial markets conditions.
The latest reports coming from the US suggest interest rate curves are inverted; 10-year Governments Bond’s interests are lesser than the 3 months Governments securities interest. An inverted yield curve occurs when long-term government debt yields fall below rates on short-term yields. The German Government 30 year securities yield has dropped to negative. Those who hold German bonds will end up in losses at the end of maturity. There is no respite for Switzerland 50 year bonds.
Coming back to the financial markets in India, which was under severe pressure after the union budget, and now the government may plan to initiate appropriate stimulus to revive the equity market, despite global uncertainties. The big question in front of the investor is whether the Indian market can alone move up despite global recessionary fears. If the bears succeeded to bring down the indices below the crucial support at 10645 for NIFTY can cause intensified sell-off, before making a U-turn.
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