Saturday, 5 October 2013

Weekly Market Update - 30 Sep to 04 Oct 2013

The first day of the week started with the markets tumbling but the rest of the week saw gains backed by vague but positive domestic indicators. The highlights of the past week are :

  • The US govt. shuts down as the senate fails to come to an agreement regarding the coming year’s budget.
  • CAD widens in Q1 to 4.9%
  • Core sector output up to a 7 month high at 3.7%.
  • India PMI for September at 49.6%.

The market has  shown gains for 4 straight sessions showing barely any regard to the US govt. shutdown. This maybe because nobody really expects the shutdown to last for very long. Also there were strong domestic indicators which played the part of a counterpoint.

The CAD for Q1 has widened to 4.9% of GDP but analysts are seeing this as positive because this figure is better than expected and it now looks very much possible to cap the CAD to $70bn as committed by the govt. It seems that the govt's trials to curb the import of gold has finally borne fruit. The September month manufacturing PMI data stood at 49.6% which again signals contraction but is better than the previous month’s data. The core sector output also looks promising at a 7 month high. The only rotten apple in this group of numbers is the fiscal deficit which is already at 3/4ths of the full year target signifying a possible drastic reduction in govt. spending in the remainder of the current fiscal.

The markets have painted a rosy picture so far but analysts are not buying the story yet. according to them the current rally cannot be trusted to last long and the positive indicators are still too blurry to make any forecasts of turnaround. There are no great expectations from the earnings season and that may bring the markets back on its knees. Furthermore, coming in mid-October is the decision on debt ceiling by the US congress. If the shutdown is anything to go by, then raising the debt-ceiling is not going to be an easy task. Any failure on this front is likely to affect global economies more than any govt. shutdown.

Investors need to watch out for the US news and individual stock performances in this earnings season to make an informed decision about their equity portfolios