Bulls well Fed!
After Monday blues, the bulls would hope Tuesday turns better. With US stocks closing higher ahead of Fed meeting today, the bulls may just have their way initially. All said and done, it is an event risk for bulls and bears. We expect the Sensex and the Nifty to open higher, though things may cool down yet again as FII inflows have been quite erratic in recent times. Small-cap and mid-cap shares may remain in momentum. While the going is good remember, most of these scrips have rallied due to speculation rather than any dramatic shift in their fundamentals.
Banks and builders led the rally in US after investors in Singapore and the Middle East agreed to inject $11.5bn into UBS and pending home sales unexpectedly advanced. Moreover, Wall Street is expecting at least a 25 basis points cut in the benchmark federal funds rate when the FOMC meets later today. Having said that, the rate cut is already showing in stock prices if one goes by the rally over the past few days.
So, in that sense, there may not be much to cheer if the widely anticipated 25 bps rate cut does materialise. Given some of the positive economic reports of late, the Fed may not be inclined to please bulls with a larger 50 bps reduction. But, if it does, global markets will rally, albeit briefly.
World markets will wait to listen the comments from the FOMC on the health of the US economy amid the current housing sector meltdown and an indication of how interest rates will move in the next few months.
Stocks like Financial Technologies and Bharat Forge are expected to see action in the coming days.
US stocks rose on Monday as investors welcomed a stronger-than-expected pending home sales report and braced for Tuesday's expected interest-rate cut from the Fed.
Financial shares in the Standard & Poor's 500 Index climbed to the highest level in a month, boosted by JPMorgan Chase and Citigroup. DR Horton, the largest US homebuilder, gained after contracts to buy previously owned homes increased for a second month.
Energy producers and miners advanced on speculation that a Fed rate cut will spur demand in the world's biggest economy.
The S&P 500 added 11 points or 0.8%, to 1,515.96. The Dow Jones Industrial Average advanced 101 points, or 0.7%, to 13,727.03. The Nasdaq Composite Index gained 13 points, or 0.5%, to 2,718.95.
Ahead of the meeting, pending home sales index showed a rise of 0.6%, versus forecasts that sales would fall 1%. After the close of trade, mortgage lender Washington Mutual said it was cutting its dividend and more than 3,000 jobs in the wake of the housing and credit market crisis.
In corporate news, UBS said it will write down about $10bn related to the credit market crisis and will borrow about $11.5bn from Singapore and Middle-East investors.
Troubled bond insurer MBIA said it will receive a $1bn investment from private equity firm Warburg Pincus. Shares jumped around 13%. McDonald's reported November sales at its stores open a year or more rose 8.2%, well above estimates. Shares gained nearly 3%.
MGI Pharma rallied nearly 20% after the drug company agreed to be bought by Japanese drug company Eisai for $3.9bn in cash.
Treasury prices slipped, boosting the yield on the 10-year note to 4.15% from 4.1% late on Friday. In currency trading, the dollar fell versus the euro and was little changed against the yen.
US light crude oil for January delivery fell 42 cents to settle at $87.86 a barrel on the New York Mercantile Exchange. COMEX gold for February delivery rallied $13.30 to settle at $813.50 an ounce.
European markets advanced. The pan-European Dow Jones Stoxx 600 index rose 0.6% to 375.06, building on strong gains made on Friday. France's CAC-40 advanced 0.6% to 5,750.92, while the UK's FTSE 100 closed up 0.2% at 6,565.40. The German DAX 30 topped the 8,000 mark for the first time since the start of November, rising 0.5% at 8,033.36.
However, Brazilian and Mexican stocks fell. In Brazil, the benchmark Bovespa index fell 0.3% to 65,446. In Mexico City, the IPC index of 35 most-traded issues fell nearly 0.3%, or 86 points, to 31,182.75. Argentina's Merval edged up 0.3% to 2,244.97 and Chile's IPSA fell 1.3% to 3,252.11.
In other emerging markets, the RTS index in Russia surged by nearly 2% to 2330 and the ISE National 30 index in Turkey was up 0.3% at 72,149.
Asian markets were mostly higher this morning. The Nikkei in Tokyo was up 107 points at 16,032 while the Hang Seng in Hong Kong rallied 391 points to 28,892. The Kospi in Seoul gained 8 points to 1914 and the Straits Times in Singapore added 14 points to 3567.
China's inflation accelerated to the fastest pace in almost 11 years, supporting US Treasury Secretary Henry Paulson's case that a stronger yuan is needed to help cool the economy.
MARKET...
Choppiness to continue
Indian stock benchmarks closed in the red after a promising start, as weakness in select world markets and fresh bad news related to the slump in US housing sector weighed on the sentiment ahead of tomorrow's Fed meet. However, select small-cap and mid-cap stocks bucked the general market trend.
Though, a 25 basis point cut from the US central bank is more or less guaranteed, global investors are keen to hear what the Fed policy makers have to say on the outlook for the world's biggest economy and further movement in borrowing costs there.
European stocks advanced for a fourth day, led by banks and construction companies, after UBS said it will shore up capital by selling stakes to investors and Lafarge announced plans to expand in the Middle East.
Asian stocks fell for the first time in four days after writedowns by UBS raised concern losses from US subprime investments will widen.
The benchmark BSE Sensex closed at 19,930, down 35 points or 0.2% over the previous close. It touched a high of 20,095 and a low of 19,834 after opening at 20,074. On Friday, it had closed at 19,966.
The NSE Nifty fell by about 14 points or 0.2% to shut shop at 5960. Meanwhile, the CNX Midcap index was up 0.85% at 8547. The BSE- Small-Cap index surged by 1.7% to 11,530.
Market breadth was positive. On the BSE, 2061 shares rose while 805 shares lost ground and 37 remained static.
Among the top gainers within the Sensex were Hindalco (2.6%), ICICI Bank (2.1%), Infosys (1.8%), DLF (1.4%) and Bharti Airtel (1.1%). The big losers in the Sensex were TCS (2.4%), BHEL (2.4%), Cipla (2%), HDFC (1.7%), HDFC Bank (1.65%), NTPC (1.6%) and Hindustan Unilever (1.4%).
