The markets bounced back from oversold territory as the flow of good news from US continues. The market also feels more reassured now that the interest rate hike in US has been delayed from September.
However the bigger concerns of China slowdown remains and will keep tormenting the market from time to time. However for now we will see continued recovery in the equity markets.
With the Fed indicating that in view of the weakening global situation Sep rate hike is unlikely the global markets started the relief rally. China has also started the process of reducing the interest rate and may continue to do so if the situation doesn't improve.
So instead of a tightening in liquidity we are again looking at one more QE in the making .
However the market will be volatile as it weighs the good news of continued liquidity and slowdown in Chinese economy . China is an unknown territory and the market is yet to grasp the degree of slowdown in China .
Markets prepare for high levels of volatility as bulls and the bears fight it out. China has reduced its interest rate by 0.25 % to 4.6 % to calm the stock markets .This will push in additional liquidity in the market and help it to stabilize. However the point to note is even after this good news US stocks closed lower after a failed attempt to rally.
What we need to keep an eye on are :
1)How bad is the growth situation in China ?
2)How will it affect other markets like India ?
The worsening situation in China may also stop the Fed from increasing interest rate in September . This will be a good news for all the emerging markets including India.
We will also see further short covering rally both in the equity and currency market.
So far as rupee is concerned in case China goes for another devaluation of its currency we rupee has to depreciate further .
The 4 key pressure points to watch for are as follows:
2) Commodity prices mainly Oil
3) Deleveraging of the world economy
4) Emerging market currency depreciation
The 8 learning and inferences from the past corrections are as follows:
1. All markets are highly correlated when the market falls.
2. It's human beings who trade in shares. So fear and greed drive the market much beyond fundamentals.
3. The correction is not over. It will be deep and painful. It will test our conviction.
4. Emerging market currencies will keep correcting. Rupee may see sharp correction and move close towards 69 within a few months’ time.
5. Reduce leverage; there may be major margin calls in Indian equity market.
6. Down one year someone will say we should have bought those good stocks when it corrects much beyond its fundamental value.
7. Everyone is a great stock investor when all shares goes up my every day. We have to control our emotions. Overcome greed and panic to become a successful long term investor.
8. The world will have to deleverage and how it does that will determine the outcome of this episode.
Good news the Fed has not yet raised the interest rates ... not so good news : they are very close to it and interest rates may move up as early as September.
Oil continues to make new lows .... and seem to be going down the proverbial bottomless hole .
Indian equity will may see some hope in the short term and rupee may stabilize at current levels.
The recent housing date from the US have come stronger than anticipated > This has let to further strengthening of USA . With the recent huge correction in China stock market , we will see some softening in Indian market .
Indian Rupee will also be under pressure in the near term.
The market is moving into a consolidation mode with a downward bias.
With the unexpected devaluation of the Chinese currency , there is an imminent sell off across the markets . Commodity markets has continued their correction . Indian markets will open gap down and are expected to be weak in the short term