Global markets advanced early in the month as the fresh round of quantitative easing (QE2) in the US boosted risk appetite. Economic data was by and large positive which added momentum to global markets. Commodities (mainly precious metals and Crude) rallied in anticipation of weakness in US dollar post the Federal Reserve’s USD 600 bn QE plan. The IPO of Coal India Ltd sailed through smoothly and also ensured handsome listing gains for investors.
However, fresh concerns on some of the smaller European economies, potential further monetary tightening in China and sharp fall in some of the Asian markets led to a fall in markets in second week of the month.
In the US, the much anticipated QE2 was announced wherein the Fed Reserve said it will buy back bonds worth USD600bn from the markets. The idea is to keep bonds yields under check and stimulate inflation through infusion of liquidity in the financial system. From a market viewpoint, the QE2 provides a further boost to emerging markets as fresh liquidity will flow into them in search for higher returns. However, from an economic viewpoint, the QE2 may throw several challenges for India, especially in containing inflation. Following the QE2 announcement, there has been firming up in the prices of Crude oil, which has reached USD 87 per barrel. For India, this would mean upward pressure on inflation (not to mention further subsidy losses for oil marketing companies like HPCL, BPCL and IOC).
No comments:
Post a Comment