Bloodbath in the Global Markets

The Wall Street witnessed its toughest week in more than two years. The US markets saw a huge selloff - tumbling as much as 6% this week. Dow Jones industrial average plunged by 1,175 points (-4.63%) on Tuesday, its largest single-day points drop in history. On Thursday, Dow plunged another 1,000 points (-4.15%). It was the third drop of more than 500 points for the Dow in the last five days.

In the biggest global sell-off since 2016, financial markets from Asia to Europe to the United States were rocked primarily by concerns about inflation. The Dow was off a heart-stopping 1,600 points on Tuesday afternoon trading, the largest intraday point decline in the blue-chip index's history.

The upbeat US jobs data sent the bond yields surging on the prospects of increasing inflation and hammered equities.

US non-farm payrolls rose by 2,00,000 jobs in January beating expectations of 180,000 and their largest annual gain in more than eight years. Average hourly earnings rose and boosted the year-on-year increase to 2.9%, the largest rise since June 2009.

Bond yields rose sharply after the government reported the fastest wage growth in eight years, stoking fears of inflation. The increase in bond yields hurts stocks in two ways: it makes it more expensive for companies to borrow money, and it also makes bonds more appealing to investors than riskier assets such as stocks.

Economists and analysts have cautioned about the heightened risk of a market correction following months of steadily climbing equity valuations.

While market fear may not be based in any change in economic fundamentals, in its last meeting under chair Yellen, the Federal Reserve indicated it expects inflation pressures to increase through the year.

According to projections released in December, officials expect three rate hikes in 2018 - so long as market conditions remain broadly as they are - but some economists believe the central bank could add another increase at its final meeting of the year.

In the news from cryptocurrency space, as per a leading financial daily, India is planning to regulate cryptocurrency exchanges to keep track of transactions conducted there.

A finance ministry official said that a panel set by the government is going to look in to issues relating to the cryptocurrencies and is expected to submit its report in the current fiscal year, ending on March 31.

Cryptocurrencies are a curious bunch. They have no central bank backing and have not yet been regulated. Yet, these seem to have found favour among a large number of people, with demand growing every day. There are over 800 cryptocurrencies in existence today, with new ones being added to the list every day.

A lot of people are still skeptical about the currency's future. Our own government and the central bank certainly don't like Bitcoins.

And yet, it would probably not be wise to dismiss bitcoins and the blockchain industry entirely. At least, not without understanding the mechanisms that make cryptocurrencies and blockchain work in the first place.

As is the case globally, there is tremendous interest in bitcoins in India as well.

This week, the bitcoin dropped to its lowest level in more than two months. The digital currency fell to a low of US$5,947.40, its lowest since mid-November. With that decline, bitcoin has now lost more than 50% for the year so far.

The latest sell-off follows reports in the last week that have raised worries about increased regulation, hackers and potential price manipulation at a major cryptocurrency exchange. J.P. Morgan Chase, Bank of America and Citigroup also said they have decided to ban cryptocurrency purchases by their credit card customers.

While the world of digital currencies is intriguing, it can get very confusing for the layman.

The good news is that expertise is at hand to help you navigate the seemingly complex world of cryptocurrencies.

There's a lot happening in the world of cryptos. Prasheel Vartak and his guru Tama Churchouse, who have been researching cryptos for years, will keep you on top of the happenings in the crypto world. Join them here.

Global indices witnessed huge selloff during the weak. European stocks traded in a downtrend during the week. Germany (DAX) ended with loss of 5.72%, France (CAC) ended with loss of 5.55%, and the London market (FTSE) was down 4.27%. Asian markets witnessed highest selling pressure. The Nikkei Index was plunged 9%, the Hang Seng Index and Shanghai Index sold off the most by falling 10%. US markets traded in the red and ended their session with a loss of 6%.

RBI Maintains Status Quo

Indian share markets traded on a negative note during the week. The BSE Sensex was down 3.03% for the week, while the NSE Nifty was down 2.84%.

Realty (+2.10%) and Healthcare (+2%) were the biggest gainers. Bankex (-3.45%) and IT (-3.02%) were the biggest losers for the week.

In news about the economy. The Reserve Bank of India (RBI) kept interest rates unchanged in its monetary policy review today.

The six-member Monetary Policy Committee (MPC) of the RBI kept the repo rate unchanged at 6% in its sixth bi-monthly policy review of the fiscal year.

As per the RBI statement, five of the six MPC members voted in favor of a status quo.

With this, the policy rate stands at a seven-year low. The MPC committee had last cut the repo rate by 25 basis points in August last year.

As for inflation, the RBI raised its March-end Consumer Price Index (CPI) inflation forecast to 5.1% and projected an inflation range of 5.1-5.6% in the first half of the next fiscal year.

The Reserve Bank of India's (RBI) monetary policy statement is one of the most tracked events in the financial world. With both core and retail inflation easing to new lows, a rate cut in key interest rates was widely expected. The RBI did not disappoint and announced a quarter of a percentage point cut.

The decision is in line with the RBI's neutral monetary policy stance, tracking the rate of inflation.

However, the central bank in its monetary policy statement expects inflation to rebound soon.

The decision comes at a time when inflation as measured by the CPI has been accelerating and has topped 4%, which is the central bank's medium-term target, for two consecutive months. Latest data shows CPI inflation accelerated to 5.2% in December, the fastest pace in 17 months, from 4.8%. The rise was due to the statistical impact of a low base.

On growth, the RBI has cut the growth projections for the current fiscal to 6.6% from 6.7% earlier. For the next financial year, it has projected gross value added (GVA) growth of 7.2%.

Rate cut or not, we do not attempt to predict how and when macroeconomic developments will unfold. Instead, we focus on the fundamentals and the underlying business strength of companies. The ValuePro team is always on the lookout for all-weather stocks whose fortunes are not tied to economic cycles.

From other news. India's services sector grew at the fastest pace in three months in January, with recovery in new business orders.

Signaling a further increase in activity at the start of 2018, the seasonally adjusted Nikkei Services Business Activity Index remained above the neutral mark of 50 in January, posting reading at 51.7, up from 50.9 in December.

Job creation accelerated to the second strongest in over six-and-a-half years. However, as firms struggled in receiving timely payments, the Goods and Services Tax (GST) continued to be a key constraint to businesses and the service sector remained a laggard relative to its manufacturing counterpart.

In another set of data, Foreign Portfolio Investors (FPIs) infused a net amount of Rs 137.8 billion in equities and Rs 84.7 billion in debt in January, translating into net inflows of Rs 222.5 billion (US$3.5 billion).

The infusion follows an outflow of over Rs 35 billion by FPIs from the capital markets (equity and debt) in December.

The infusion was seen on the back of factors such as uptrend in global markets, promising economic numbers back home, better than expected third quarter earnings, among others.

Note that during 2017, FPIs put in a total Rs 2 trillion in Indian equity and debt markets.

Nifty 50 Index Tumbles 3% for the Week
Nifty 50 Index Ends at Life-time High

The Nifty 50 Index witnessed extreme volatility during the week. On Monday, it opened the session 157 points gap down before recovering a bit to end the session 94 points down. The bears continue to dominate as the index opened 372 point gap down on the next day. It witnesses some short covering during the midweek. But the index again gap down 160 points on Friday and ended the weekly session 3% down.

As mentioned a week before the correction in the Indian indices was inevitable as the RSI indicator was trading in its extreme overbought territory. Last week, the index slipped 300 points and this week it fell nearly 350 points.

As mentioned in our previous note, if the index keeps dropping, what happens at the 10,500 level, which is an important support, would an interesting thing to watch out for. The index slipped to a low of 10,276 but did not sustain down for long as it recovered on the same day.

Currently, the index is again trading near the 10,500 support level. The index also found support from the rising trendline (blue line). The RSI indicator has also cooled off and is now trading near its support level.

If the index holds the 10,500 level, we could see the bulls getting back in action. On the flip side, if it does not hold the support level, the correction might continue for some more time.

COMMODITIES

Gold Trades on a Negative Note

Gold traded on a negative note during the week. On Monday, it opened the session a bit lower and recovered to end the session positive. But the bulls couldn't hold the gains as the yellow metal witnessed selling pressure during mid-week on back of firm dollar and robust US jobs data which potentially increased the chances of more US interest rate hikes this year. Gold recovered a bit towards the end of the week but ended its weekly session with 0.75% loss.

Gold Ends in the Red

Crude Oil Witnessed Selling Pressure

Crude oil traded on a negative note during the week. On Monday, it opened the session gap down and continued to trade in a downtrend throughout the week. The selling was seen due to soaring US output which undermined OPEC's efforts to tighten markets and prop up prices. The weakness also seen after Iran announced plans to boost production adding to concerns about a sharp rise in global supplies. The black gold ended its weekly session with 6.09% loss.

Crude Oil Plunges 6% for the Week

CURRENCIES

Dollar Trades on a Positive Note

The dollar traded on a positive note during the week. It opened its session higher on Monday but slipped down to close the session flat. But the greenback witnessed buying interesting against the rupee going into the mid-week. The weakness in rupee was seen amid the mayhem in the equity markets and heightened global currency volatility. Frantic dollar demand from importers and banks in the midst of fresh foreign fund outflows predominantly weighed on the rupee. The dollar finally ended the weekly session 0.25% up against the rupee.

Dollar Trades in an Uptrend

Commodities 02nd Feb 08th Feb % Change
Gold/10 gms 30,336 30,107 -0.75%
Silver/kg 38,651 38,000 -1.68%
Crude Oil/barrel 4,186 3,931 -6.09%
Natural Gas/mmBtu 184.90 175.70 -4.98%
Currencies 02nd Feb 08th Feb % Change
USD / INR 64.24 64.40 0.25%
EUR / INR 80.34 78.89 -1.81%
GBP / INR 91.43 89.54 -2.06%
JPY / INR 58.50 58.78 0.48%

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