Market summary for Dec 17

Dollar is at 13 year low against yen and expected to weaken further due to the fed’s rate cuts and its statements it will continue to use unconventional methods to boost economic activity.  So far, this has not triggered an unwinding of the yen carry trade. However, could this be on the cards? If so, we could see a quick decline in emerging markets equities. My feeling is that if it has not happened yet, it is probably not going to happen

Fed sets the fed funds rate at a range of 0-0.25%. This is the first time I have heard of it setting a range as opposed to a number.  However, we can see the 13 week T-Bill trading at around the range which almost seems to be the norm nowadays. The T-Bill is always ahead of the curve when it comes to predicting rate cuts.

 Opec decides to cut production by 2 million barrels but oil prices barely budge. Markets have already factored that cut in and even a fed rate cut that led to a decline in dollar did not boost oil prices. There seems to a realization that demand destruction has well and truly hit home.  What I hear is that Chinese processing of crude oil is down as well and that Americans have driven 100 billion fewer miles between November 2007 and October 2008, compared to the prior year.  However, this action provides a good support for gold and barring a massive deleveraging effort that took place in October, gold should hold its value. It has already rallied significantly though from $720 to $850 so any gains could be limited.

 Indian markets are on the verge of a downtrend. The BSE and NSE hit technical resistance points post which it corrected despite favourable global cues. I believe the rally is most likely over. We should see sideways to downward movement.  I would not be surprised to see it go below 9000 given the enormous negative news flows out there.