Global Trade Likely to Stay Range-Bound and Stable
The past few days have continued to remain volatile for the global equity markets with India being no exception. The global equity indices have swung wildly, recording one of their biggest respective falls while reacting to the geopolitical tensions between Russia and Ukraine. On the very next day, the equities showed a remarkable short covering move which was massive enough to recoup all of the previous day’s losses. It would be needless to mention that the retail investor took the maximum hit – the Indian futures market’s trading hours are not in sync with those of the global futures markets.
While those who had the privilege of accessing the SGX Nifty futures had enough time to go short on the index on the night of February 11, the less fortunate Indian retail traders had no option but to open to a rude gap-down on the following Monday morning. Even if the markets fully recovered on the next trading day, the losses suffered by the retail segment were immense. Perhaps, this incident can go down as just another reminder of making the Indian futures market trade in sync with the global futures market.
The global landscape has remained more or less flat while the Indian markets have continued to relatively underperform despite a massive short-covering led pullback. The Dow Jones, S & P 500 and the Nasdaq have remained flat with negative returns of -0.87 per cent, -0.65 per cent and -0.43 per cent, respectively. During the same time period of the previous five days, Nifty has given a negative return of 1.61 per cent. The broader Nifty 500 stood worse, returning a negative 2.13 per cent.
It was expected that if the dollar index remained stable, some gains in the metal stocks were likely. This did not work out either. While the DXY stood flat with returns of 0.24 per cent, the Nifty Metal index lost 4.08 per cent. The markets have largely discounted the impending first rate hike in March by the Federal Reserve. This is no longer a factor for discussion. The market buzz now revolves around the number of hikes that the calendar year 2022 will have. With this now being an accepted fact, the bonds have continued to see a widespread selloff. The US 10-year yield has kept its head held high at 2.03, which was seen only in the first half of 2019.
Over the coming days, the global trade setup is likely to stay largely range-bound and stable. However, this presumption is not discounting any fresh geopolitical flare-up between Russia and Ukraine. It is only this external thing that can now further spook the markets since all the remaining things stand discounted in the current price. Meanwhile, crude oil tested fresh seven years’ high again; however, it has retraced from its recent peak. Over the coming days, crude is likely to stay ranged while it oscillates in a defined range with a bullish undertone.
It is not only the geopolitical tension that is aiding the rise. From a technical perspective, the commodity is seen attempting a major breakout. Of late, the negative divergences from the lead indicators are holding the commodity back. As such, crude is unlikely to see any major decline from the current levels. Overall, for the next few days investors will need to use the range-bound markets to pick up good quality stocks. Short-term trading returns may be difficult to come by, but the current state of volatile consolidation is providing a very good opportunity to purchase good quality stocks with a medium-term horizon.
