Did foreign investors and prop traders sniff the US tariff verdict?
Subscribe to enjoy similar stories. Hours before the US Supreme Court struck down President Donald Trump's tariffs on Friday, a section of foreign institutional investors (FIIs) in India flipped their bearish bets to bullish ones, even as proprietary traders sharply raised their bullish bets. The two moves, combined, may signal anticipation of a ruling which has the potential to trigger a stock market rally on Monday.
Cumulative outstanding positions of FIIs in index calls stood at 23,592 net short contracts on Thursday; by the end of Friday, as the US verdict approached, they had reversed it to 60,555 net long contracts. Meanwhile, props, or brokers who trade for themselves, increased their net call option longs to a whopping 175,073 contracts from a mere 3,199 the previous day. At the same time, index call options of domestic institutional investors stood at a net long 1,061 contracts, unchanged from the previous day.
However, market veterans are doubtful that a rally, even if it happens, will sustain. In fact, the verdict may have actually increased the uncertainty for America's trading partners, since President Trump has recourse to other laws to re-impose tariffs. Soon after the verdict, Trump invoked a 1974 trade law to impose a 10% global tariff on imports, and raised it to 15% on Saturday.
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