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Economy Jul 30, 2012

Nifty futures, Asian indices up on central banks’ action

By Venky Vembu

Hong Kong: Most markets across Asia are off to a positive start to the trading week, on expectations of policy action from central bankers all around - from India to the eurozone to the UK and even the US.

As at 7.30 am IST, Nifty futures are up over seven-tenths of 1 percent, trading around the 5170 mark. Elsewhere across the region most indices are up - with the exception of Shanghai. Hong Kong's Hang Seng Index is the outperformer, up nearly 1.2 percent.

We are likely to see a positive start to the trading day.

What's driving investor sentiment? The expectation, based on comments from policymakers in Europe, that central banks around the world will announce bond-buying programs, injecting liquidity to the markets. Last week's comments from the ECB president that the ECB stood by to do whatever it takes to protect the euro drove up the market, but now he'll have to put his money where his mouth is.

Over the weekend, there were yet more positive comments from the head of the Eurogroup, suggesting that the ECB and the stability fund would perhaps buy Spanish and Italian government debt. But whether Germany's central bank will be comfortable with such a program is in some doubt. A critical meeting today between the heads of the ECB and the German central bank will clarify that point. But a German veto will be a negative trigger for the markets.

Back home, the RBI will release its macroeconomic and monetary policy document later this morning ahead of the policy decision on Tuesday. Analysts are coming around to the view that despite the risks of inflation arising from a weak monsoon, the RBI still has elbow room for a 25 basis point (or a 0.25 percentage point) cut in policy rates. Tuesday will also provide clarity on the progress of the monsoon, but thus far, the news is grim.

For today, we'll likely see a positive start to the trading day.

by Venky Vembu

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