Debate, OMO and Mr Market's reading list

Author Benjamin Graham introduced the character of Mr Market in his seminal book on investing: The Intelligent Investor. Mr Market he writes alternates between bouts of euphoria and depression always reacting on the basis of the newest news. Graham uses this allegory to caution investors about taking too short term an approach in their decision making. Cut to today’s time, the behaviour of Mr Market has hardly changed even after 70 years when he was first introduced. On the other hand it has become more pronounced with him being barraged with a constant stream of new data points.

We can clearly see what Mr Market is reading these days. He is definitely following the Twitter feed of Ms Nancy Pelosi and Mr Steve Mnuchin. Hence he gets severely excited whenever he hears the phrases “ the deal is likely” , “pretty soon”, “put pen to paper” and goes into a risk on drive. Then he fervently buys equities and emerging market currencies and sells his stock of gold, bonds and dollar assets. On the other days, when he is unable to find mentions of stimulus or finds that the deal is unlikely, he reverses his course of action. He is keeping a tab on US elections and the corona virus numbers too. Once the stimulus and election events are over, we are sure that Mr Market will move on to his next paramour.

Feeding Mr Market the data fill for the day, the second and final US presidential debate is over. Compared to the first debate it was far less rancorous. Discussion on the corona virus took centre stage as Biden accused Trump of failed response which Trump countered by citing Biden’s response during H1N1 times. The verdict on who was the winner is still to be given. The US saw the release of weekly jobless claims yesterday, the number declined more than expected. The existing home sales exceeded estimates and reached a 14 year high. On the Brexit front, the talks between the UK and EU restarted in London. The negotiators, Mr Barnier from the EU and Sir David Frost from the UK, both acknowledged that there are still “significant gaps”.

The Dow Jones ended up by half a percentage point in the trading yesterday. The dollar index and US treasury yields ticked higher. 10 year US Treasury is at 0.85. The euro and pound trade at 1.18 and 1.3065 respectively. Gold is hovering around 1900$/oz levels.

Domestically, the INR trades around 73.66 and the 10 year benchmark around 5.90 levels. The ample liquidity conditions are helping bond yields. The RBI came out with the announcement of a second tranche of 20k Cr INR OMO due next week. We will have the weekly bond auctions today and the cutoffs will give further cues to the market. Post the market hours we will see the October MPC minutes. It is to be noted that there were three new MPC members this time and it will be the first time when the market will read their comments.