Uncertainty over Big Ben's move has Asian markets on edge

As trading began in Asian markets on Friday morning, there was only one thought on investors’ minds: what will Ben Bernanke do later today? And evidently, it’s not a comforting thought.

Overnight, US equities finished down, reversing three days of gains. Europe too suffered some palpitations after rumours that Germany would suffer a sovereign rating downgrade. The extension of a ban on short selling in European markets too pointed to an undercurrent of nervousness.

Across the board, Asian indices opened marginally down on low trading volumes, as investors kept to the sidelines, evidently preferring to sit it out until they have clarity on the policy outlook that the US Fed Reserve chairman unveils today. And although indices in Hong Kong and Australia have subsequently risen, there’s a sense of anticipation.

Even seasoned analysts are having a tough time reading the tea leaves. Strategists at Barclays Capital reckon that it’s too close to call whether Bernanke will in fact announce a third round of Quantitative Easing today. In their estimation the scope for market surprises is large.

But economist Nouriel Roubini, who famously foresaw the 2008 financial crisis, believes that even if Bernanke doesn’t announce QE3 today, it is inevitable that it will happen by the end of the year given the fragile nature of the US economy.

Back home in India, the downside effect of yesterday’s inflation data, and the policy outlook from the RBI, will continue to be felt today.

The RBI had warned of a sharp slowdown in growth since inflation remains untamed, which would require it to tighten interest rates even going forward.

The RBI has flagged the urgent need for the government to implement the Direct Tax Code and Goods and Services Tax.

Overall, a nervous day of trading lies ahead for Mumbai.

You can hear the podcast below:

http://av.firstpost.com/2011/08/083428_aug-26-2011.mp3