Are inflation prospects fading? Bad news is now good news for markets

Global market turmoil to continue, early signs point to risk aversion

Are inflation expectations declining?

Investors have expressed concern that aggressive rate hikes by major central banks to fight inflation could lead to a recession, reducing demand for raw materials and other items.

That suggests that bad news for financial markets now appears to be rapidly turning into good news.

Indeed, stock markets around the world rose on Friday and posted strong gains for the week as the recent drop in commodity prices eased concerns about inflation and the possibility of rate hikes.

The S&P 500, Dow and Nasdaq posted weekly gains of more than 6 percent, with the S&P 500 up 6.4 percent, the Dow 5.4 percent and the Nasdaq 7.5 percent.

The benchmark S&P 500 index confirmed a bear market the week before. US Treasury yields gradually edged higher from a two-week low.

The pan-European STOXX 600 index and the MSCI world stock index posted gains of 2.62 and 2.63 percent, respectively.

“The (stock) market came in this week oversold, so it was time for a rebound,” Quincy Krosby, chief equity strategist at LPL Financial in Charlotte, North Carolina, told Reuters.

“We have seen oil prices fall along with other commodity prices,” he said, adding that the market move reflects “expectations of at least a marked slowdown, if not an outright recession.”

But the risks of a recession or a sharp global economic slowdown need to manifest first before a drop in demand reaches inflation-fighting central banks.

On Friday, Indian equity benchmarks rose for the second session in a row, completing a successful week. Asian markets, which ended the week on a high note, passed on overnight gains to Wall Street.

But the rupee hit a new record low of 78.33 against the dollar, signaling deep concern, despite the dollar’s slide on Friday, posting its first weekly loss of the month.

Following monetary policy tightening by the Reserve Bank of India and the US Federal Reserve, high oil prices and a volatile rupee, foreign investors continue to flee the stock markets of the India, with withdrawals totaling nearly Rs 46 billion so far this month.

So the risks are many.

For the coming week, analysts predicted that global trends, crude oil price and foreign institutional investments would weigh on Indian stocks. They also warned that benchmark indices would be volatile due to the upcoming monthly expiration of derivatives.

“Indian markets managed to recover from lower levels after two weeks of sharp cuts thanks to a recovery in global markets and a cut in commodity prices. It looks like this recovery may see further extension, and we can expect a decent rally in the coming days in stock markets,” Santosh Meena, head of research at Swastika Investmart, told PTI.

“In addition to the F&O expiration, monthly car sales figures and the developing monsoon will be important triggers,” Meena said.

He added that crude oil, the movement of the rupee and the behavior of FIIs (foreign institutional investors) would be other important factors.

After two weeks of losses, the 30-stock BSE Sensex rose 1,367 points, or 2.66 percent, last week. Nifty as a whole rose 405.75 points or 2.64 percent.

Tata Consultancy Services was the biggest gainer last week, with the valuation of nine of the top 10 companies, based on market capitalization, rising by Rs 2.51 lakh crore.

While Reliance Industries was the only member of the group to lose ground, other gainers included HDFC Bank, Infosys, Hindustan Unilever Limited and ICICI Bank.

But investors would watch the movement of the rupee, the expiry of contracts and the progress of the monsoon.

Ajit Mishra, VP of research at Religare Broking, told PTI: “We expect volatility to remain high this week as well, thanks to the scheduled expiry of June derivatives contracts.”

“In addition, the performance of the global indices, especially the US, the movement of crude oil and the progress of the monsoon, etc., will remain on the radar. This week also marks the beginning of a new month, so car numbers will also start rolling in from July 1,” added Mishra.

Yesha Shah, director of equity research at Samco Securities, said: “A number of events are coming this week that could affect the market mood. Investors will be looking at the US quarterly GDP growth rate figures. “.

According to Shah, the specific fluctuations of shares in D-Street in India will continue to be driven by auto sales data as investors try to predict the direction of the market. The monthly expiration of F&O in the second half of the week may also contribute to the volatility of the index.

Last week, several industrial metals experienced a drop.

After hitting $8,122.50, the lowest level since February 2021 and a 25% drop from the March high, standard copper on the London Metal Exchange fell 0.5% to $8,367 a tonne. .

Oil prices posted their second weekly drop despite rising on Friday.

International benchmark Brent crude rose $3.07, or 2.8%, while US West Texas Intermediate crude rose $3.35, or 3.2%, to close the session. week at $107.62 per barrel.

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