Make no mistake; risk aversion is here to stay, so is uncertainty and volatility. The euro has hit a fresh four-year low against the US dollar. The CBOE VIX ended upwards of 33 overnight. The dollar index is trading above 87. Risky assets like stocks, commodities, and emerging market currencies are being shunned. Safe havens like gold and US treasuries are being snapped up. Germany is banning some bearish bets on sovereign bonds and certain financial stocks.
Markets are pre-occupied with the euro-zone debt crisis and its potential fallout on the global economy. The trend is unlikely to change anytime soon. We see another weak start to the day as Asian markets are mostly in red following the overnight fall on Wall Street. Ironically, markets in Europe ended smartly higher. One has to watch how they open today. The NSE Nifty may yet again test 200-day DMA of 4987 today. It will be interesting to see if it rebounds from there or slips under it
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The "headline risk" is expected to persist for a while considering the external situation. The bad news is overwhelmingly negative right now. That must turn substantially in favour of the bulls if the market is to reverse course and head north. FIIs too should resume their buying spree. A good start and overall healthy monsoon season will go a long way in bolstering India's growth and in reviving investor confidence.
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