The local market has evidently factored in the GDP growth deceleration and restricted corporate earnings growth. It, however, has not priced in a Wall Street doomsday this week.
The major market drivers appeared to believe that the US political brinkmanship over the debt crisis would end before the dawn of August 3 in the Asian markets.
Sure, key indices here retreated a bit last week without generation of panic.
According to market intelligence, a section of the market players would, perhaps, attempt selective buying on the first two days of the week to prepare the ground for a relief rally and to prove the point that everything is normal. Their bets could be on the beaten-down stocks such as of the telecom sector. Apparently “acceptable” reasoning may be that an across the industry tariff hike is in the offing.
But the uneasiness of the seasoned market participants is unmistakable.
The US in all probability will avert the looming crisis this week, but chances of re-emergence of it may continue to haunt the markets. For the time being, global equity markets seem to have decided to look on the bright side of not only the Eurozone debt crisis, but also the game of brinkmanship being played out over the raising of the US debt ceiling from its present level of $14.3 trillion.
No market worth the salt has factored in the immediate cataclysmic event of the US treasury making a default. The problem, on the contrary, is that stock indices have already factored in a happy ending and could be left vulnerable if there is any untoward development.
Under a plan negotiated late on Saturday night, the US debt ceiling could be raised in two steps by about $2.4 trillion and spending would, perhaps, be cut by a slightly larger amount. The first stage — to raise the ceiling by about $1 trillion — would take place immediately and the second later in the year.
Some observers said if this compromise dose is worked out by Monday evening Washington time, the inevitable presidential veto could come on Tuesday.
Three years since the onset of the Great Recession, the Chief Executives of Wall Street's major banks wrote last week to the White House warning that a continued deadlock over raising the debt ceiling “would be very grave”. The warning from Wall Street came amid renewed concerns over the fate of the Eurozone with bond yields in Italy and Spain back to the levels seen before the debt package for struggling members of the single currency union was agreed a week ago and Cyprus starting to look like the next country in need of a bailout.
A warning also came from the German Finance Minister, Mr Wolfgang Schäuble, who said: “Everyone in the US should be aware of their responsibility for the global financial markets.”