DECEMBER THE FOURTEEN

It’s going to be quite an eventful “DECEMBER THE FOURTEEN” as we have Fed rate decision, ECB rate decision, BOE official bank rate and official exit polls for Gujarat, Himachal Pradesh assembly election lined up. Market is almost certain that Fed will hike rates, BOE and ECB will hold yet again and BJP will win Gujarat. Any divergence from these expected results on that day is likely to create turbulence in the market in the otherwise thin trading phase considering Christmas and New Year long holidays would be approaching.

TIME (IST) DATE EVENT CUR
12.30 AM 14-Dec-17 Federal Funds Rate (FOMC) USD
05.30 PM 14-Dec-17 Official Bank Rate (BOE) GBP
06.15 PM 14-Dec-17 Minimum Bid Rate (ECB) EUR
07.00 PM 14-Dec-17 Gujarat  Election Exit Poll INR

The year so far has been very eventful from market point of view. It witnessed some path-breaking, historic moments both globally and domestically. Global events that changed the course of market dynamics were Republican Donald Trump winning the US presidential election and giving way to ‘Trumponomics’. Emmanuel Macron (The Young Boy!) winning French President Election. Britain voting to exit the EU. Whereas, back home we had government demonetising the notes of Rs 500 and Rs 1000 (who can forget those serpentine long ques before ATMs), GST bill passage and its implementation, setting up Monetary Policy Committee to raise transparency in rate-setting decisions , surgical strikes on Pakistan, Indian women’s cricket team losing the world cup finals but winning millions heart.

Now, coming back to December The Fourteen events. Market now firmly believes Fed will hike interest rates in December. Fed had pencilled in three rate hikes in 2017 and has already moved twice. In my view there is a 95 % chance of a rate hike in December as advance US GDP q/q of 3 % (against 2.6 % forecasted) last Friday has further bolstered the hike expectations. Market would look for clues for number of rate hikes forecast in 2018 by Fed. It’s also almost certain that ECB and BOE would be holding the rates until and unless something dramatic happens in the next few weeks which is highly unlikely. Any deviation from this by ECB and BOE could potentially shake and awake the market intoxicated in Christmas and New Year celebrations.

Exit polls for Gujarat and Himachal Pradesh by a plethora of news channels would excite millions about what’s going to happen on December 18-the vote counting day. Almost all Indian political experts/analysts could be found in various TV studios on 14th December evening. Some anchors would be very excited and may appear to come out of TV sets to explain their point of view. Be watchful about this out of the (TV) box explanation!! Various surveys are indicating a comfortable victory by BJP in Gujarat. Most likely, BJP will win but what needs to be seen is with what degree of bruises in fight against Congress. BJP winning Gujarat will have limited upside in Indian equities and Rupee. Recent alliance of Alpesh Thakor (OBC leader) and Jignesh Mevani (Dalit activist leader) with Congress, Hardik Patel impact, BJP’s weak state leadership, SMEs anger over GST implementation, anti-incumbency are going to make fight tough for BJP. Any trouble for BJP in reaching 50% mark in Gujarat can see Indian equities tanking 10-20 % and sharp Rupee fall. So be ready for an event before Christmas and New Year !!

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