Greece elections, trading losses by JP Morgan and weak Indian and Chinese IIP (Index of Industrial Production) data drove down equities and commodities with safe haven treasuries and currencies benefitting. Equity indices across the globe fell while commodities of oil and gold suffered losses. Euro lost while the US Dollar and the Japanese Yen gained. The Indian Rupee fell to an all time low close before gaining on the back of central bank moves.
Markets will watch for the ongoing election issues in Greece, as it will determine if Greece will stay in the Euro or not. JP Morgan trading losses of USD 2 billion will increase focus on trading positions of big banks and will seen many of them cut down risk. Volatility will increase as risk positions are cut down. Indian IIP growth came in negative for March 2012 raising concerns on economic growth. Chinese IIP growth came in below expectations for April 2012 confirming a slowdown in the Chinese economy. China cut bank reserve requirements by 50bps in the wake of lower growth expectations.
Derivative positioning suggests a slight build up of shorts in the Indian markets. However the levels of open interest in Nifty index futures and levels of implied volatility in Nifty index options suggest that the markets are not too keen on heavy directional positions. Nifty should see selling pressure come off around current levels if inflation behaves.
India Inflation for April is expected to come in at 6.7% against 6.89% levels seen in March. Inflation coming in around or below expectations could raise rate cut hopes leading to market stability. However inflation above expectations will pull down markets further as it will add to the current weak sentiment.