The volatility is not done yet. The global issues that caused heightened volatility in the equity and currency markets last week has not died down. The threat to Eurozone stability is very much out there and this threat of stability will keep markets on tenterhooks in the coming weeks.
The Sensex and Nifty see sawed last week with the indices initially falling by 3% and them climbing back all the way to close up around 0.5% week on week. The positive close on the indices was led by the IT stocks, with the IT index closing up by 2.9% week on week. Nifty near month index futures open interest was lower by 4.5% week on week. Nifty put implied volatility closed down 7.5% while Nifty call implied volatility moved up by 13.8% week on week.
Asian markets closed mixed while US and European indices closed positive week on week. The coordinated action of five central banks, ECB, FED, BOE, BOJ and SNB to provide USD liquidity to banks helped the US and European markets close with week on week gains. Banks in Europe are seeing liquidity being cut off due to their exposure to Eurozone sovereign debt. The markets will however worry about the fundamental position of banks in Europe and will remain nervous on bank stocks. Equity markets in the US and Eurozone will not see any sustained rallies unless there is a longer term solution to debt issues.
The currency markets saw the INR fall by over 3% against the USD on the back of risk aversion selling. The RBI had to sell USD in the market at Rs 48 to the Dollar levels to prevent the INR from sliding. The INR closed last week down 3.07% against the USD but higher by 1.6% from lows on the back of RBI selling. The INR is likely to breach Rs 47 briefly before going back to Rs 47.50 levels on the back of continued risk aversion in markets. The Euro threatened to go on a free fall on the back of Greece default issues. The Euro at one point of time during last week was down over 1% against the USD before climbing back on the back of central banks liquidity support actions. The Euro closed up by 1% against the USD week on week.