Markets may remain volatile ahead of debt ceiling talks in US

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Markets may remain volatile ahead of debt ceiling talks
This week Indian markets rallied, despite falls across European and the US markets. Investors, particularly foreign institutional investors lapped up shares, as the partial shutdown of government in the US, raised hopes of a delay in quantitative easing in the US.

The belief was that the shutdown would result in a fall in the US GDP and hence a delay in the QE3 tapering by the US Federal Reserve. The rupee also rose sharply against the dollar this week, as the partial government shutdown ensured that the US dollar remains weak.

Markets also ignored poor services PMI data, which came in at a 4 and half year low, as liquidity drove share prices higher.

It's most difficult to gauge the mood of the market, as liquidity keeps pushing stock prices higher, despite adverse news flows However, the one thing that is expected to remain is volatility.

The next few weeks see the same increasing ahead of the US debt ceiling talks. The US Treasury has said the $16.7 trillion debt ceiling must be raised by Oct. 17 to avoid a potential default on the U.S. Debt. The Republicans and the Democrats are locked in a war over various issues, which makes the prospects of the passage of the debt ceiling extremely difficult.

A report in the Washington Post has said that "A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse," citing a report.

Indian markets which have outperformed other markets this week, may see increased volatility in the coming weeks.

Next week the earnings season will also kick-off with IT major Infosys set to announce its results. Markets go into the earnings season with very low expectations.

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Read more about: markets, us gdp, us debt ceiling
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