Expectations Of Easing Financial Conditions In The US Boosted S&P 500

INR is trading further weaker today, while other Asian currencies are trading mixed

Aditi Gupta,

Economist,

Bank of Baroda

Mumbai, December 27, 2023: With many global markets still closed, trading volumes remained thin. In US, expectations of an imminent Fed pivot have led to a rally in stocks. On the other hand, DXY trailed near a 5-month low. After surging by 3.3% last week, global oil prices rose by another 2.5% yesterday, amidst fresh attacks in Red Sea region. In India, CAD moderated to 1% of GDP in Q2FY24 from 1.1% of GDP in Q1. This was led by higher net services receipts and remittances, even as merchandise deficit was higher. Separately, pressure on liquidity continued with deficit trailing at Rs 2.7lakh crore. As a result, overnight rate also inched up, with call rate at 6.81%. This is attributable to transient factors such as month-end GST outgo and advance tax payments, which would gradually smoothen out.

• Equity markets traded in narrow ranges. Expectations of easing financial conditions in the US boosted S&P 500 which rose to its record high. CME Fed Watch tool is attaching a 71% probability for a rate cut beginning Mar’24 and reports have priced in cumulative cut of ~ 150bps next year. Nikkei also firmed up as BoJ minutes reflected some dovishness. Sensex rose by 0.3%, led by oil and gas stocks. It is trading higher today in line with Asian stocks.
• Global currencies ended mixed against the dollar. DXY slid further by 0.2%, amidst strengthening expectations of rate cut by Fed in Mar’24. On the other hand, EUR rose by 0.3% as ECB hinted at keeping rates elevated for longer. INR depreciated by 0.1%, tracking higher oil prices. It is trading further weaker today, while other Asian currencies are trading mixed.
• Markets in UK and Germany were closed for a public holiday. US 10Y yield closed flat in absence of fresh cues. Markets have already priced in a pivot in the Fed rate cycle. China’s 10Y yield fell by 4bps ahead of major macro releases, which would provide cues for policy support. India’s 10Y closed stable at 7.18%. It is trading a tad higher at 7.19% today.

(The views expressed in this research note are personal views of the author(s) and do not necessarily reflect the views of Bank of Baroda. Nothing contained in this publication shall constitute or be deemed to constitute an offer to sell/ purchase or as an invitation or solicitation to do so for any securities of any entity.)