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Market watch: Here comes the cloud

The silver lining is the apparent "decoupling" that most global markets have struck out the last couple of times there's been a nasty fall in the US market, writes Udayan Mukherjee.

india Updated: Sep 09, 2007 23:00 IST

It seems Americans love to sulk through the weekend. How often have we seen, in the last few months, a disastrous US market closing on a Friday? Bad news that the world has to wake up to on a Monday morning. This week is no different. The silver lining is the apparent "decoupling" that most global markets have struck out the last couple of times there's been a nasty fall in the US market. Let's see if we can be a third time lucky.

The US is in bad shape, there's no getting away from it. The non-farm jobs data out on Friday is the worst in four years. Jobs are being lost there, not created. People like Marc Faber, Stephen Roach of Morgan Stanley and Jim Walker of CLSA must be smiling and saying "We told you so..." Every such data point raises the probability of that dreaded R word.

Ironically, Fed watchers and emerging market punters may take a positive leaf out of this strain of economic weakness. If indeed the economy is faltering, chances of the Fed cutting rates on the 18th get heightened, and that's good news for stock markets. At least in the near term. Steroids do keep patients running for a while, after all.

In the medium term though, the much bigger question is whether the US is hurtling towards an inevitable recession. The medium-term global equity picture will be influenced far more materially by that outcome rather than small booster shots of 25bps rate cuts.

Closer home, this comes as a speedbreaker in our march to all-time highs. The next ten days will tell us whether this is just a minor bump or something that slams the brakes again. Depending on how the global picture shapes up, another significant buying opportunity may be on it's way. Emerging markets like ours will only continue to rally through the US pain if the final outcome is marginal growth in the US but not recession and a series of resultant rate cuts, which pump more money back into the global financial system. That would be the best of both worlds for economies outside the US that are growing at a fast clip.

The boat is not rocked by an actual recession yet there is more money to chase growth. With every distressing set of economic data though, one can't help wondering whether such an ideal outcome will pan out after all.

Meanwhile, keep some money ready. It's nice to go shopping on a cloudy day.

(The writer is Executive Editor, CNBC-TV 18)