Explained: What to expect from global markets this week

As we begin this new week, CNBC-TV18’s Prashant Nair takes us through what the global setup looks like.

More and more central banks are starting to indicate a reduction in easy money policies, with three big central bank meetings last week. As a result of which, yields would start to move up. Bond yields fell post the ECB meeting on Thursday and the ECB did indicate a taper in line.

In the US, there was a fairly large amount of Treasury auction, Treasury supply. The comforting news is that all of it got digested without a hitch. This again happened last week.

There are market-determined interest rates, there is Fed policy, it looks like the announcement effect of a taper is mostly priced in as it is pretty well advertised. But the flow effect of when the taper actually starts, we will have to wait and see.

For now, as far as bonds go, the debate between bulls and bears seems kind of quiet, but certainly not settled.

Equity markets have lately seen a bit of a wobble, especially in the last two days. The S&P 500 over Thursday and Friday is down about 1.50 percent or so. Citi has a model called the Polls Model, which is made up of 19 indicators and measures complacency in the market and how that indicator had hit a warning level. So, the question is, will the equity wobble continue into this week as well and again, this is something we will have to wait and see.

There is a flow-through effect coming from what is happening inequities as equities saw a bit of a risk-off. It turned the sentiment in forex markets negative as well, and investors continue to reduce risk over there, which means that people turn and move into the US Dollar, and the US Dollar strengthens.

The Fed policy, which is a policy variable despite last week's significantly weaker than expected jobs print which saw half a million job miss in the number market, is still likely to be on track to announce tapering in the upcoming meetings.