Market Round-up: All Eyes On The US Fed This Week

Markets are expected to remain volatile and the week gone by too was extremely volatile. The equity markets closed the week on a positive note leaving an extremely volatile week behind us, and well above the strong support levels at 16800 on the Nifty.

The weakness in the markets was amplified by the news about one or two fairly large US local bank failures, and the speculations about the likelihood of large-scale bank failures in future. "The problem highlighted has been the lack of liquidity in the market, probably caused by an ultra-tight Fed policy.

However, it should not be forgotten that banks fail many a time due to the deficiencies in the asset-liability management in the aftermath of the pandemic and the resultant liquidity expansion which has now encountered a solid roadblock. Though the Fed is reported to be doing enough to address the liquidity issues, the probability of similar issues cropping up cannot be easily dismissed. Further, this may not deter the Fed from persisting with the interest rate policy as it is," says Dr. Joseph Thomas, Head of Research, Emkay Wealth Management on the markets. Domestic equities joined the global market rally after consortium of major US private banks announced $30 billion rescue package for First Republic Bank. Nifty on Friday opened gap up and despite a volatile session, managed to close near day's high with gains of 114 points (+0.7%) at 17100 levels. Broader market too gained 0.3-0.7% while India VIX corrected by 9% to 17.77 levels. Realty and Metals were the biggest gainers followed by Banking and IT. On the other hand, Pharma, FMCG and Auto were the weak counters.

"Going ahead we expect a short term pullback in the market as lower US PPI inflation and slower US retail sales data has led to the hope of lower 25 bps rate hike in the Fed policy meet next week. However the market structure is still weak and hence traders should take a cautious stance at higher levels. Metal stocks could see some momentum after China's central bank cuts CRR by 25bps in an effort to stimulate its economy. Realty stocks are seeing buying interest post DLF announcement of record sales growth. With oil hovering at 15-month low, cement, paints and OMCs would also be in focus," Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

Clearly, the event to watch this week, would be the US Fed action on interest rates. A 25 basis points hike would put pressure on the markets, while a status-quo policy would be helpful for the markets going forward.