By Anuja Mardikar
Lately, a series of economic updates have been creating waves across global markets. The Federal Reserve is expected to raise interest rates for the first time this year in the coming week. Markets are hoping for a clarity whether the Fed will stick to its current forecast for three rate hikes this year or will it raise it to four. Analysts feel that if the Fed raises the interest rates aggressively it will be a shock to the markets. The meeting for the same is slated to hold on 20th March and the decision is due on the 21st of March. Therefore, the Fed is likely to be a major driving force for the global markets in the coming week. In case of a rise in interest rates, borrowings from bank becomes more expensive for companies hitting their revenues and if enough companies experience this, the stock prices decline making stock ownership less desirable.
When politics collide with business
The global markets were in for a rude shock this month when US President Donald Trump announced his intention to introduce a 25% tariff on imported steel and a 10% tariff on imported aluminium stirring concerns of a trade war with China and the EU. The dollar experienced a fall against most currencies after the announcement, falling to a more than two-year low versus the yen. The imposition of punishing tariffs triggered a sharp backlash from a number of countries. Jean-Claude Juncker, the president of the European Commission, said the EU would “react firmly and commensurately to defend their interests” in a statement. Canada is the largest exporter of steel to the US and also is a major destination for US steel exports. Chrystia Freeland, Canada’s foreign minister, also sent out a swift response. After a swift correction in stocks last month, the Trump announcement has caused further volatility in the trading environment. One reaction from the investors has been to move into U.S. small-cap stocks that are more domestically focused.
Britain and the European Union are expected to agree on a provisional deal next week on a post-Brexit transition period. The deal will only happen if London and the bloc resolve all divorce matters first. India is not decoupled from the rest of the globe and there will be collateral damage in case of Brexit. The event would lead to a change in strategy for most money managers, shifting their preference from equity towards safe havens such as gold. Risk-off trade kicks in, especially because of currency volatility. A risk-off trade may lead to some money going out of emerging markets like India.
Trading remains volatile
The bulls were defeated by the bears last week, as political uncertainties both on the global and domestic front prevented investors from making fresh stock purchases. The week gone by was a topsy-turvy one as the Indian stock market gained on three of the five days yet ended with weekly losses. The equity market witnessed frantic selloff on Friday, the 16th March which dragged key indices 1.51 per cent lower. Many big guns of Dalal Street have turned cautious on the equity market. S Naren, CIO, ICICI Prudential AMC said the phase to make easy money is over, and one should now be aware of the risk. Volatility shall feature the stock market in 2018.
Renewed hope with new entrants
Despite the recent turmoil that the stock market is witnessing, there are quite a few companies coming out with IPOs in 2018. There’s a healthy pipeline of upcoming IPOs across a broad range of sectors set to give traders plenty of opportunities. IPO market in the USA remains lucrative as the number of domestic and foreign companies considering an IPO is increasing. The technology and healthcare industries are expected to be key drivers of activity this year, and a number of big brands and high-profile stocks are expected to come to market. Uncertainty from the likes of Brexit, upcoming European elections, the expectation of higher interest rates and effects of the very recent PNB fraud will all play a part in how markets perform this year and beyond.