A daily look at the Markets from Joshua Raymond, Market Strategist, City Index.

“A surprise Indian interest rate hike increased fears that the wider economic recovery could cool, triggering weakness in the benchmark European Index Markets on Monday.

India rate hike fuels growth fears

The rate hike from India came as a bit of a shock. When you align this decision with recent moves by China to cool excessive growth there too, the emerging markets picture is developing into one of concern that it could slow the wider economic recovery.

The resurgence in demand for basic metals in emerging markets has played a strong hand in the recovery of the global equity markets, particularly with the miners being heavyweights in European Indices.

The fear is that by cooling growth there, it may scupper demand for metals and this in turn could have negative consequences on the ability of European Indices to power ahead.

As a result of the move by India, commodity stocks are particularly weak today and this is most of the Index losses have originated from so far, with Vedanta, Eurasian Natural Resources and Kazakhmys all down by over 3%.

Investors in defence mode

The losses today have gathered pace throughout the morning’s session which is a bit of a concern.

If we lose another 1% or so, it could encourage those investors who had been holding out for more upside movement in the last week to scale down positions, and this may trigger wider consolidation in the markets.

It is also interesting to see the key defensive sectors stronger today too.

Both pharmaceutical and tobacco firms are higher, along with a stronger US Dollar, which affirms that investors have started the week in defence mode.”

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