An event filled March will increase volatility in the markets
March 2013 will see a new Pope at the Vatican and a new government in Italy. The month will also see kicking in of USD 85 billion spending cuts in the US (also known as the “Sequester”). Japan will get a new central bank chief in March.
India will be analysing the last full budget of the UPA government that would have been presented in the parliament on the 28th of February 2013. RBI mid quarter review of monetary policy in mid March will be watched for rate cuts. Advance tax outflows in mid March will determine expectations for fourth quarter 2012-13 corporate results that will start coming out from the second week of April.
The event filled month of March will keep equities and currencies volatile as markets try and grasp the effect of each event. The new Pope at the Vatican will not have a bearing on markets but it is definitely the event of the year for most of the developed world. However markets will keenly watch the formation of a new government in Italy after the elections in February turned out inconclusive. The fact that Italian voters rejected the austerity measures of the Monti government does not bode well for Europe.
The EU is trying to push governments to reduce their debt and deficits and if countries such as Italy do not adhere to the EU dictate bond yields of these countries will rise sharply leading to fresh concerns on debt repayment. Equities have reacted violently to rising bond yields of Italy and Spain in the past and can fall sharply if Italian bond yields rise on a sustained basis. The Euro will fall against the USD leading to a domino effect on emerging market currencies including the INR.
US spending cuts, known as the “Sequester”, will start in March. Lower government spending in the US is likely to place jobs at risk leading to a weak job market and worries on US consumer confidence. Consumers have been resilient in the US with consumer confidence increasing in January. US home sales rose to a two decade high in January as home buyers took advantage of low property prices and low interest rates to purchase property. US policy makers will also have to pass a bill to allow the government to spend as the temporary increase in borrowing limits passed in January 2013 ends in March.
Markets will watch for any action by US policy makers to lower the spending cuts and to allow the US government to spend.
Table 1. Market movement analysis
Japan is set to get a new central bank chief in March. Haruhiko Kuroda is set to take over, as the head of Bank of Japan and markets will watch if he increases the bond purchase program of the central bank. Increase in the amount of bonds purchased by the Bank of Japan is likely to weaken the Yen and a weak Yen is good for Japanese exporters. A weak Yen also signals increase in risk appetite amongst global investors, which is positive for equity markets.
India will be analysing the borrowing program of the government for fiscal 2013-14 in March. A borrowing program that is lower than what it was in fiscal 2012-13 is positive for markets.
RBI is expected to cut the repo rate in its mid quarter policy review on the 19th of March 2013. A repo rate cut coupled with positive sentiment on government borrowing will push down bond yields.
The fourth quarter 2012-13 advance tax payments are due on the 15th of March. Growth in advance tax payments will indicate that corporates are doing better than what they did last year. Markets will watch for the advance tax payment numbers to judge corporate performance in the fourth quarter of 2013-13.
All in all expect a volatile March for markets.