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from Expert Zone:

How high will the Sensex go?

(Any opinions expressed here are those of the author and not of Thomson Reuters)

A bronze bull sculpture is seen as an employee walks out of the Bombay Stock Exchange building in MumbaiSince April, the stock market has been in a frenzy after a long period of utter gloom. In quick succession, the Sensex jumped month after month to cross 26,000 on July 7. This was not mere euphoria created by the election of the Narendra Modi government, with a single-party majority in the Lok Sabha after a long time.

The market had to make up a lot for lost time. In the last three years of the Congress-led government, the Sensex lost 6 percent. Even if the Sensex had risen at the same pace as the rate of interest, it would have crossed 26,000 last year. The build-up of investor confidence by Modi during the campaign, and subsequently after the election, was instrumental in reversing and accelerating the lethargic pace of the Sensex.

In four months, the Sensex climbed 16 percent. What is amazing is a fifth of that jump was accomplished in a single day on May 13.

from Breakingviews:

German soccer glory was predictable – with luck

By Robert Cole

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Brazil’s World Cup was first-rate entertainment thanks to its many surprising results. For its part Breakingviews, also somewhat surprisingly, predicted that Germany would win the competition as long ago as last Christmas.

from Breakingviews:

“Seller beware” when profiting from market calm

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Seller beware. That is an unusual warning, but it applies right now to the options market. Sellers of protection against large price moves have been pocketing gains. But many will suffer losses if markets become less calm.

from Expert Zone:

National agenda to bring $100 billion of domestic household savings in capital markets in next five years

(Rajiv Deep Bajaj is the Vice Chairman and Managing Director of Bajaj Capital Ltd. The views expressed in this column are his own and do not represent those of Thomson Reuters)

Currency of different denominations are seen in this picture illustration taken in Mumbai April 30, 2012. REUTERS/Vivek Prakash/FilesIndia is an attractive investment destination for foreign institutional investors, due to its vibrant economy, favourable demographics, high growth potential and well diversified capital markets. In fact, the benchmark Nifty has representation from 10 broad sectors, four with weightage in double digits.

from Counterparties:

MORNING BID – Speculating on a Hypothesis

A few thoughts as the market heads into a relatively quiet week featuring mostly Federal Reserve speakers and a few other random events that aren't likely to knock the market to its knees:

    Bear markets don't just start "because," as Dan Greenhaus of BTIG puts it. Usually there are a few factors, but most often it's some combination of speculative excess, tightening rates, and a reduction in that bit of froth in an area that's crucial to the bull market or economic expansion in question. When technology investing money dried up and the companies that sold shares to the public foundering on a lack of earnings, the tech bubble was unwound pretty quickly. The financial crisis came about as banks became unable to handle the volume of debt that had been sold and as the Fed raised rates, sapping demand in the "greater fool" housing market, and as the banks ate themselves under synthetic products that weren't anything underlying. So with that in mind, what's the speculative excess now? Probably the overall thing is ultimate low rates, because when that does go, the market is going to view growth differently. The expectation for higher rates is a primary underpinning for overall investor nervousness. If rates are higher, the expansion is threatened, and inflation becomes an issue. It's not that those conditions exist now, but the prevailing view for rising rates explains in many ways why this bull market is as loathed as it is. People remain wary of making bets in this market, even if retail investors would have been handsomely rewarded by getting in at any morn, so that's point in favor of them rather than against. Higher rates often do end up killing a lot of bull markets - and economic expansions - so the inflation figures and the Fed members' beliefs related to the threat of rising prices are all important, and we'll attempt to make sure of the chatter coming from the likes of Charles Plosser, Jeff Lacker and John Williams. So that's the second team when it comes to Fed speakers (Bill Dudley also speaks, but the Puerto Rican economy is the topic) in terms of influence, but still, those views remain important. Complacency isn't a "thing." As Luciana Lopez and Jennifer Ablan wrote about late last week, the VIX being low isn't a workable assessment of the concerns thousands of investors have about the equity market and economy, particularly when the VIX really only reflects expectations for volatility in the coming couple of weeks and not in any long-term kind of way. So yes, the VIX around 10 doesn't make a lot of sense until you remember it's been about 45 cays where the index hasn't even hit a 1 percent change - so realized volatility has been in the 4 percent range.

from Edward Hadas:

Market failure can be sign of fatigue

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Modern economies work to meet consumers’ needs. So if needs are not met, that must be an economic failure, right? Healthcare suggests otherwise. Sometimes, unhelpful ideologies get in the way of economics delivering the goods.

from Breakingviews:

Central banks abet the complacency they fret about

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

It is commonplace for central bankers to protest against violent price swings, but these days they are concerned that markets are too placid. New York Fed President William Dudley, European Central Bank Governing Council member Ignazio Visco, and Bank of England Deputy Governor Charlie Bean have all recently expressed disquiet about very low volatility. They are right to worry, but in casting blame, policymakers need to look in the mirror.

from Data Dive:

Low volatility: worrying trend or new normal?

Volatility in financial markets is low, and that concerns New York Fed president William Dudley. Reuters reported he said last week, "I am nervous that people are taking too much comfort in this low-volatility period and as a consequence of that, taking bigger risks."

For instance, Treasuries volatility is really, really low:

Treasuries volatility 6/2

As is equities:

Equities volatility 6/2

And foreign exchange:

FX volatility 6/2

The Fed is worried that stable prices are encouraging  investors to increase their borrowing and load up on risk, which could end poorly if the economy goes south. But what if this is simply the new normal? Izabella Kaminska has an interesting take:

from Expert Zone:

Indian markets: Earnings in focus, better to stick to fundamentals

(Any opinions expressed here are those of the author and not of Thomson Reuters)

It’s reasonable to ask whether the Indian stock market has lost steam after the blistering run-up seen over the past couple of months. Since August, the markets have rallied about 40 percent, with many stocks in high-beta sectors such as infrastructure generating a return of more than 100 percent. At a one-year forward price-to-earnings (P/E) multiple of 15x, the Nifty isn’t exactly cheap for retail investors right now.

The Narendra Modi-led government, which contested and won the elections on the development plank, is expected to push for reforms in no time, taking on knotty issues related to taxation and infrastructure.

from Edward Hadas:

Three Ms for economics re-education

Many economics students are unhappy with what they are being taught. A network of 62 groups from around the world has drawn up a petition calling for more “pluralism” in instruction. The malcontents find the dominant neoclassical model too narrow and want to know why so few experts predicted the 2008 financial crisis. They also want less abstract theory and more study of actual economies. The reproaches are just, but the students’ reform agenda is insufficiently radical.

They underestimate the scale of the intellectual scandal. The profession’s ignoble tradition started in the 19th century, when most political economists, as they were then known, failed to notice that industry was leading to massive improvements in the standard of living. Today’s practitioners know much more, but they still struggle to explain the most basic phenomena – prices, wages, money, credit, unemployment and development.

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