As investors in India take a day off from the stock market on Thursday, all eyes will be on the global developments and the reaction of the world markets to the concerted rate cut by world?s central banks.
The fear psychosis has already hit the Indian markets as they fell to 10,000 levels and 18 of the leading Sensex stocks were at their yearly lows. ?It?s another 48 hours for the global markets,? said a research head with a leading foreign institutional investor. These two days will finally decide the extent of the downfall from these levels, he added. And the signs are not very encouraging.
At the time of going to press, the Dow Jones index was below the 9,300 level and traders had rejected the initial euphoria caused by the rate cuts. US stock-index futures fell after retailers reported September sales that disappointed investors, overshadowing interest-rate cuts by the Federal Reserve and central banks in Europe aimed at unlocking the credit markets. ?The bounce straight after this announcement was short- lived,?said Jesper Kruger, a money manager at ATP in Copenhagen.
?At the first blush, while this is a big step, it is unlikely to prove sufficient to stem the rot,? said Marc Chandler at BBH. However, there are others who reckon that the move by countries to come together indicates the seriousness of the issue and the will of the nations to assuage the pain. ?Concerted central bank rate cuts, considered unthinkable just days ago, show that G7 authorities will do whatever it takes to address the consequences the crisis,? Lena Komileva at Tullett Prebon said.
China?s participation in the concerted efforts shows that emerging market powers are working with policymakers from industrialised nations to find a truly global solution. ?Will it help? Only time will tell. Will it help the markets? Questionable in the short term,? Commerzbank economist Peter Dixon said.
The Fed?s Open Market Committee, which voted unanimously for the move, said in its statement that ?incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending.??
?It will go slowly down further because the world economy is heading for the rocks, there are clearly big problems,? Leo Drollas, deputy executive director at the Center for Global Energy Studies, said in an interview in Amsterdam.