 "Nikkei zooms 11%; why are the Asian markets rallying on Tuesday?")
After Monday's mayhem, global markets mainly Asian were seen quoting with astounding gains in early deals, with Japan's Nikkei up nearly 11 per cent at the highest point of the day.
As of 07:45 AM, Nikkei had pared some gains, but still was up strongly by 8.5 per cent at 34,112. Among other beaten down markets, Kospi rallied nearly 5 per cent and Taiwan 3 per cent in intra-day deals. Hang Seng and Shanghai Composite were trading with gains of 1 per cent each.
So, what has led to this sharp pullback in global markets?
US stock futures rise
The US stock futures - Dow Jones, the S&P 500 and NASDAQ rallied up to 2 per cent in post market trades after having tumbled around 3 per cent on Monday. The pullback in stock futures was triggered after Fed officials shrugged-off recession fears in the US.
The US central bank policymakers pushed back against the notion that weaker-than-expected July jobs data means the economy is in recessionary freefall, but also warned that the Federal Reserve will need to cut rates to avoid such an outcome.
More From This Section
Many of the latest job report's details leave "a little more room for confidence that we're slowing but not falling off a cliff," San Francisco Fed President Mary Daly said at an event in Hawaii.
"Our minds are quite open to adjusting the policy rate in coming meetings," she said. When and by how much will depend on incoming economic data, of which there is a lot before the Fed's next meeting in mid-September, she said, adding, "it's extremely important that we not let (the job market) slow so much that it tips itself into a downturn." READ MORE
Yen depreciates
The Japanese Yen weakened to 146 against the US dollar this morning, after having hit a high of 141.70 in trades on Monday. The said depreciation is likely to come as a relief to Yen carry traders.
Technical bounce back
Japan's Nikkei had plunged 25.5 per cent from a high of 42,224 on July 11 to a low of 31,458 on August 05. Given the severity of the fall, a technical pullback was warranted say analysts.
Further, analysts suggest that a stronger Yen augurs well for the Japanese economy; hence any fall in the equities hereon will make the market more attractive.
Meanwhile, Kranthi Bathini, Director-Equity, WealthMills Securities recommends that such pullbacks are common after sharp moves. He adds, that apart from the technical aspects talks of possible emergency rate cut by the US Federal Reserve may have aided the pullback.
Kranthi, however, expects the US Fed to cut rates aggressively by up to 50 basis points in the September meeting.
What does the GIFT Nifty hint for our markets?
GIFT Nifty futures quoted near about 24,300 levels, hinting at a likely gap-up trade of 200 points on the Nifty 50 index.
The 24,000-mark is a crucial support for the market, as it coincides with the Budget day panic low, said analysts.
Further, domestic institutions (DIIs) are likely to support the Indian market in case of dips like they did yesterday. DIIs net bought shares worth Rs 9,100 crore on Monday, even as FIIs (foreign investors) offloaded stocks to the tune of Rs 10,000 crore; thus offsetting a major fall in the India market.
Going ahead, traders should closely track developments on the global markets for the next few trading sessions, to see if they stabilise or not; recommends Kranthi Bathini.