The entire world was watching when some 10 million-odd Greek citizens came to vote for a new government on Sunday. Trillions of dollars around the world were at stake and an unfavourable outcome could have altered the direction for the global financial markets.
There is an interesting and inter-dependent relationship among events, expectations and prices. Since markets these days move around expectations from particular events, it is interesting to note what and how some events can affect our markets and, therefore, your investment.
Unsustainable Spanish, Italian bond yields
Although the worst outcome has been averted for the time being, thanks to the collective wisdom of Greek voters, the euro zone problem is not over by any stretch of imagination. Although there is bit of a relief for the market after the Greek elections, the key to watch will be the yields on Spanish and Italian bonds. If the yield on 10-year paper crosses the psychological mark of 7% and stays at that level, there could be fresh problems in the global financial system — 7% is the point after which Greece and other weak countries lost market access and had to be bailed out.
The European Council, which is responsible for defining general political directions and priorities of the European Union, will meet on June 28-29. The council, having economic policy on the top of the agenda, will have to find ways of getting out of the current economic mess. The event will be keenly watched by the financial markets as pressure is mounting on policymakers in the region to come out with a concrete plan to be able to convince investors that things will change for the better.
Multiple events could take place around this one event-to be held in July-and they could have political and economic consequences for the market.
With finance minster Pranab Mukherjee deciding to run for the top post, the corner office on the first floor in North Block will be left vacant. There are reports that the prime minster will keep the finance portfolio with him before a cabinet reshuffle can happen, but will soon have to find a suitable person for the job.
Who will be the new occupant of this all-important office? Will he/she be able to kick-start the reform process? Where will the deficit number now reach? What happens to the proposed Direct Taxes Code and goods and services tax? These are some of the important questions that will keep shaping expectations on the policy front with implication on the financial market.
After RBI decided to maintain status quo on the monetary policy in its review on June 18, expectations have already started building around the quarterly review of the policy, scheduled towards the end of July. By the end of July, we will have another reading on inflation and there will be clarity on what the bigger central banks are doing in terms of easing conditions. If they resort to easing, there could be inflationary threat and RBI may make a decision accordingly.