Nifty futures, Asian indices down after Fed spikes QE3

Hong Kong: If ever you needed proof to establish that markets are short-sighted, you’ll get it today.

Indices everywhere - from Wall Street overnight to the few Asian markets that are open for trading this morning - are down. Nifty futures too are giving back some of yesterday’s strong gains.

The proximate reason for this downbeat investor sentiment is the US Fed’s expression of confidence in the tentative signs of recovery in the US economy - and its suggestion that another round of Quantitative Easing would not be required for now.

But what ought to have been seen as good news for the economy is perceived as being bad for the markets in the short term - to the extent that a QE3 would have provided liquidity here and now.

So, right after the Fed released the minutes of its meeting overnight, stocks on Wall Street fell sharply, and ended the day pretty much down across the board.

Likewise this morning, as at 7.30 am IST, Nifty futures are trading down nearly one half of 1 percent. Hong Kong and Shanghai markets are closed for a local festival to propitiate ancestors, but Tokyo and Sydney too are down. Australia posted a surprise trade deficit, which too is weighing on sentiment.

Gold sank nearly 2 percent overnight after the Fed’s announcement, again proving that what’s good for the economy is bad for gold, which is a scaremonger’s commodity of choice.

Back home, it appears that the recent rally has caught FIIs on the wrong foot, and forced them to cover their futures positions. But given the uncertainty that hangs over the taxation provisions from the recent Budget, which even repeated clarifications from the Finance Minister and the ministry haven’t fully cleared, these FIIs will have plenty of room to cover their bets.

For today, we’ll likely see a weak start to trading.

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