9 things that could spook the market today

• The big news overnight is the collapse in commodities across the board. A record plunge in oil prices saw prices fall below $100 a barrel, on fears over the recovery of the global economy. The ‘QE2 trade’ - the

cheap money policy that had fed a months-long rally in commodities that many called a bubble - is also unwinding, with the announced end of the second round of Quantitative Easing. A short, sharp rally in the US dollar also triggered a stampeding out of the cramped commodities space. Bruised commodity bulls are regrouping to buy again. Watch out for more action.

• Asian markets have fallen with Nikkei down by nearly 2% and the Hang Seng and Shanghai down by 0.5%.

• Overnight, US equities had a rough ride. Weak economic data in the US and tepid corporate earnings dragged down the indices, although relative to the commodities collapse, they outperformed for the day. The Dow Jones index closed down 137 points.

• As if investors weren’t already spooked enough, a UN report warns of ‘speculative bubbles that could destabilise Asian economies. In its annual review of economies across Asia, which predicts ‘broad-based’ growth across the region of 7.3% in 2011, the agency warns that many of the threats to Asian economies arise from speculation. It cites rising inflation as one of the challenges to the region, and points to soaring food and fuel prices as particularly worrisome since many Asian nations have high proportions of food and fuel in their inflation basket measures.

• Finance Minister Pranab Mukherjee too flagged the risk to economic growth from high oil prices. Continued rises in oil prices could clip 1 percentage point off the government’s growth forecast of 8.75-9.25% this year, he said in Hanoi. Inflation, he noted, was projected at 7.5-8%, and if oil prices remain elevated, it could be difficult to manage inflation and also achieve high GDP growth. This is perhaps the first time the government is acknowledging the possibility of GDP growth slipping from projected levels**.**

• The government has decided to restrict cotton yarn exports again, with an eye on inflation. The decision is likely to affect the textile industry, which was riding a wave until March, but has fallen on hard times. The freeze on export of yarn has played havoc with the sector.

• More downside risk to growth, this time from a ‘coal crunch’. The Power Ministry is blaming state-owned Coal India Ltd (CIL) of not keeping pace with the demand for coal. According to estimates, coal-fired generation projects (cumulatively adding up to 62,680 MW) are slated to come up over the nextfive years requiring an additional 313 million tonnes of coal. Against this, CIL has said it can only provide 100 million tonnes. This, the ministry says, means new capacity of 42,000 MW will not be fuelled**.**

• Cairn Energy on Thursday said it had decided to sell a maximum of 40% stake in its Indian unit to mining group Vedanta Resources for $6.8 billion. This follows an open offer that Vedanta Group firm Sesa Goa Ltd had made to minority shareholders from whom it picked up 8.1%.Sesa Goa now has 18.5% stake in Cairn India, including the 10.4% it acquired from Petronas. Just for the record: the government hasn’t yet cleared the deal.

• Research firm Sanford C Bernstein has gory details of the ‘proxy war’ between the government and Reliance Industries over gas pricing. It says Reliance wants a natural gas prices hiked for it to resume drilling in the KG-D6 fields, where there’s been a sharp drop in output because fewer wells have been drilled than promised. The report says it believes Reliance doesn’t believe it is worth its while to invest additional capital in drilling wells when the price at the beach remains $4.20 per million British thermal units. It says that while there are technical issues with D6, what’s being played out is a negotiation-by-proxy between Reliance and the Indian government on gas pricing.