Global Equity markets recovery stalled, as equities declined over 1% over the week. After sustained recovery over the last three weeks G-3 markets moved lower this week, declining 2.8% in Japan, 1.3% in the Euro area, and 1.5% in the US. Rising crude prices severely dented the markets’ confidence, while renewed jitters in financial sector led to declined at the end of the week. In US, whopping $7.8bn losses by AIG coupled with Citigroup’s proposal of shedding $500 bn worth of assets triggered selling on Friday. Emerging markets also moved in line with developed markets. Within EM, EMEA gained the most (5.4%w/w), led by surge in commodity exporting countries Russia and South Africa, which were among the best performing EMs. EM Asia plunged sharply, down 4.6%w/w led by China and India. Indian market plunged 5%w/w, reverting large gains seen over the past four weeks. Economic data continue to disappoint and rising crude prices and negative global cues triggered selling pressure. Among sectors, the worst hit was Realty, Capital Goods and Banking. Market breadth narrowed and volatility increased sharply. Economic fundamentals are likely to worsen further rand thus equities are likely to bear some pressure over the next few weeks.

Global Credit markets remained mixed. US bond yields inched downwards despite rising crude prices, indicating that the growth risks have weighed over inflation fears. Despite easy cash situation, India’s G-Sec 10 yr yield moved marginally up on inflationary concerns. Large Government borrowing programme along with inflation risk will push the yields to move northwards over 8% in the coming weeks.

Currencies: The US dollar was mixed last week, gaining about 0.5% against a broad basket of EM currencies, holding steady versus the euro, but receding 2.4% against the yen. Meanwhile, INR plunged sharply to its fresh 1 year low against the US$ as $ demand is likely to pick up due to rise in oil imports. FII selling also exerted pressure on INR. Though the RBI remains hawkish, fresh rise in global risk aversion and elevated oil and other commodities prices may exert pressure on INR in the near term.

Commodities: Oil prices zoomed 8%w/w, due to the supply concerns. Rise in Diesel demand also contributed to crude’s surge. Gold being the anti-inflation trade gained over the week. Agri prices recovered marginally over the week. Meanwhile, industrial metals declined on growth concerns. Due to supply side constraint commodities are likely to remain elevated for a while. However, sharp pullback in global growth will lead to across the board softening.

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