After several days of turbulence, we are in for a gap-up start this Monday morning, as the EU and the IMF have agreed on an emergency funding facility worth as much as €720bn in loan guarantees and credits to stabilise the eurozone. The ECB will buy government bonds in the secondary market to calm jittery credit markets. The Fed will reopen dollar swap program and Bank of Japan has offered $21.6bn in liquidity. Asian markets are mostly positive. US stock futures and euro jumped on euro zone package news. Markets in Europe are also likely to open higher on the news of deal among European nations to help stabilize troubled economies.
Volatility will prevail in the near term as investors gauge the impact of the unprecedented efforts to stem the European debt crisis. Apart from Europe, one should also keep an eye on developments in key economies such as the US and China. On the domestic front, the immediate worries persist on high inflation and its possible fallout on monetary policy. And, despite the recent decline, valuations (based on one year forward earnings) too are looking a bit stretched. Fund flows, especially from the overseas investors will of course continue to have a bearing on the overall sentiment.
