MARKETS ON A DREAM RUN - PANIC BUTTONS WHICH MIGHT TRIGGER NIGHTMARES

By Ruma Dubey

The market is having a dream run, with stocks scaling new highs. Yet there is a quiet sense of disquiet. A feeling that all could come crashing down.

At times when there is fear lurking at the back of one’s mind, it is always best to stay prepared – forewarned is forearmed.  Let’s take a quick look at what could probably be the ‘panic buttons’ which could push the markets downwards. These are broad triggers but working the other way.

1: Geo-political tensions: This is like a ticking time bomb and the Middle East region is indeed like a tinder box – one does not when it could light up. Iraq and Syria are simmering, camouflaging in its smoke the ongoing boil in Libya.  Ukraine and Russia is another area of tension and that rising could have repercussions directly on oil and gas prices.  

2: Crude price: This is a direct consequence of the geo-political tensions.  Currently, it is summer in USA and Europe thus the need for oil is low and supply is plentiful. But the moment the weather starts turning in a month or so from now and if Russia, as threatened decides to cut off gas supply to Europe, it could hurt the entire world. Oil prices will thus be the biggest factor which could make or break the game as India imports almost 80% of its oil.

This is a big game changer – evidence – yesterday, Brent crude fell $2.16 to $101.37/barrel, the lowest since 24 June, 2013 and the market rose in tandem.

3: Yellen and Rajan: These two chiefs of US Federal Reserve and RBI respectively would have a big impact.  There is major worry about the bond buying coming to an end in October and interest rates pegged to be hiked by early 2015. This, many say, is causing a lot of uncertainty and every speech or Fed meet will be watched with great interest. But logically, the markets have digested this end of taper news fully and that of a rate hike too – the uncertainty is only about when and how much rate hike.

Rajan, on the other hand, will continue to keep an eye on inflation and consequently the interest rates. Rate hikes will mean a southward journey for the markets and vice versa. If its status quo, the market will also take a pause.

4: Inflation: The markets jumped up yesterday on account of a lower WPI coming in on Friday and this most certainly indicates the impact which inflation has on the markets directly. When inflation is what will decide on the interest rates, surely, this economic data will be the biggest trigger.

5: Monsoon and crop harvest: The monsoon season began amidst a lot of uncertainty and huge deficiency. This has been coming down gradually but it continues to remain a cause of worry in various pockets of the country.  As mentioned time and again, ultimately the crop production this kharif is what will be a trigger for the market.