USStocksdecline,ECBmeetingandIndianbondyields

After the Labor Day holiday when the US stock markets opened yesterday the trend of Friday was followed. The Dow Jones was down 2.25% and the Nasdaq was down 4.11% by the close. Asian markets like the Hang Seng, Nikkei and Shanghai Composite are also nursing losses in the opening today. The Dollar Index is trading at 93.45, a 1% rise from the levels seen a week ago. US 10 year yield is around 0.67. The euro, which was trading close to 1.1940 at the start of the month, is now trading at 1.1780. A similar fate has been seen in the pound as well. Gold is around 1930$/oz and Brent crude is around 39.40 $/bbl. The Indian rupee opened around 73.70 levels whereas the 10 year benchmark bond is trading at 6.04.

Having taken stock of the market levels lets see the news items which are making headlines. On the US front, the stock market pull back is defined as a much needed correction. The argument here is that the relentless rally in many of the big tech names was due for a breather. Whether this is a mild correction or the start of some secular reversal can only be described once the event has played out. The supporting arguments for both will be equally convincing, that is for sure. On the elections, President Trump has really pressed the Twitter pedal hard and the major recipient of his Tweet ire is China.

On the central bank side, the ECB will have its policy meeting tomorrow where no new major announcement is due but the analysts will watch it for the inflation forecast. Any signs of further increase in central bank B/S are limited, as the ECB balance sheet size is already standing close to 55% of GDP. Just for context, the same number for the US Fed is around 30% (20 Trn economy and 7 Trn). The cake on this metric is taken by Japan though, where the same ratio stands close to 120%. The standard economic texts pronounce that any money creation at the central bank end should be highly inflationary. But that has not been the case even in Japan. It appears that the physics-like exactness which the economists crave for is more of a chimera.

Domestically, the major movement of yesterday was seen in the bond yields where the benchmark 10 year yields moved right by close to 10 bps during the day to close around 6.05. The sober comments by rating agencies, news from the borders and the rumours about borrowing slippage all added to the mix. Of the total 12 lac crore borrowing planned for the year government has already done close to 5 lac crore. With the 30000 Cr per week calendar and 6 months remaining for the year, the calculation is exact for the announced number.