Forget Greece, G-20 and RBI – FOMC Holds Key

If you think, global markets are all set to zoom to new levels and kick start the new week with positive outcomes from G-20 meeting and Greece elections and a possible bail out to save Greece & Euro – think again. If you think, favorable outcomes from RBI policy review in the form of rate cuts apart from the above mentioned reasons will doubly help fuel the rally in the Indian markets – think again. Forget G-20, Greece & RBI – it’s the FOMC meeting on 20th June, 2012 which holds the key.

Forget Greece, G-20 and RBI - FOMC Holds Key

Nothing fundamentally and structurally in the Global or Indian economy has changed in last couple of weeks. The financial markets have lived up their temporary rise. Most of the positive outcomes, be it Greece’s expected results, G-20 discussion and rate cuts from RBI policy review are already priced in. It’s the build up to these important global and local events which is fuelling the rally.

In fact, the present global rally is more based on the expectation of the quantitative easing (QE) or monetary easing from the Federal Reserve. The markets are expecting Bernanke uncle to announce some sort of QE3 in the upcoming FOMC meeting on 20th June, 2012. But have the financial markets already priced in QE3? Will the Fed make it official in this meeting? Will Bernanke uncle announce the expected in whichever name? What is in the name – its coming!! By the way I don’t like the name QE3 anymore – OTE (Operation Twist Extension) sounds cool!! But the question is when (this time or next meeting) and in what quantum (billions or trillions)?

Irrespective of the Greece election results, G-20 meeting and RBI announcements, the market will remain volatile with wild swings and no certain direction. As the key events will unfold, there will be an intense fight between the bears and the bulls. The FOMC announcements will make or break the situation. Every word announced will be scrutinized and analyzed deeply. If any sort of monetary easing is announced, don’t expect the word QE3 as it’s something which spooks the market. But do expect refined and more probable words like Operation Twist Extension!

Probable Scenarios

Positive Greece election results and favorable RBI announcements will be neutral to positive for Global and Indian markets till FOMC meeting. If, some sort of quantitative easing is announced, then get ready for the next biggest rally of last couple of years. No announcement of any sort will only weigh on the financial markets and profit taking (risk aversion) will take place. It will seriously dampen the spirits and tumble the markets with the focus again shifting to other peripheral countries of the Euro zone and US.

Negative Greece election results and unfavorable RBI announcements will be neutral to negative for Global and Indian markets till FOMC meeting. If, some sort of quantitative easing is announced, then again get ready for the next biggest rally of last couple of years as this positive news will outweigh the negatives which will be overlooked. No announcement of any sort will seriously dampen the market sentiments and it will fall sharply.

So, all eyes are on the FOMC announcements which will shape the likely future of the world economy and US in particular.

In my opinion, on global front, don’t expect any constructive and useful announcements from G-20. The Greece election results might come in the favor of the market with Greece getting more time to solve their crisis. RBI might announce favorable rate cuts. But, keeping in mind the US elections later in this year and probable effects of quantitative easing (if announced now), Bernanke uncle might not announce anything in this FOMC meeting and keep it for the next scheduled meeting. This will make the financial markets nervous and it will fall. The question then is will it be a gradual fall or a sudden crack? In that case, one should start shorting the markets for sizable profits. But till then stay away from the market till it gets a proper direction on the basis of FOMC announcements. No harm in not trading and taking positions in the market till it get some consensus. So, till then wait & watch and get ready for the jittery, turbulent & action-packed week.

Now it’s your turn…..

Feel free to share your experience and thoughts in the comments area.


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