 "FOMC meet outcome: Bernake takes over from where Rajan left off")
Unlike the previous meeting in September this decision did not come as a surprise as the economic data for September, many of which have become available with a delay due to the government shutdown, did not show an improvement.
A significant change in the FOMC (Federal Open Market Committee) statement was the acknowledgement that the recovery in the housing sector slowed somewhat in recent months. However, this had been obvious to everyone for some time. The statement remained virtually unchanged with respect to its assessment of household spending, business fixed investment, the labour market, and economic activity in general.
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“We think that the FOMC will wait until at least the March meeting before it starts tapering,” suggests Philip Marey, Senior US Strategist at Rabobank Financial Markets Research.
Adds Dr. Soumya Kanti Ghosh, chief economic advisor - economic research department, State Bank of India (SBI): “With a temporary resolution to impasse in the US Congress, only a lasting solution to the US fiscal woes will define the monetary policy change in the near future. In light of this QE tapering is unlikely by Mar’14. Interestingly, as we have maintained several times, QE tapering was never on in 2013, notwithstanding the bravado. The reason possibly is the fact that the decline in the US unemployment rate hides more things than it reveals. For one thing in common, the US labour markets have created involuntary part-time jobs suggesting that employers do not want to hire full time workers.”
Emerging Markets
US stocks fell on Wednesday, with the S&P 500 snapping a four-day streak of gains after the Federal Reserve said it had a weaker growth outlook for the economy, even as it held steady with its stimulus program for the time being. The Dow Jones industrial average slipped 0.4%, while the Standard & Poor's 500 Index dropped 0.5%.
However, party for the Indian stock markets, which have already been on an upward spiral since the Reserve Bank of India (RBI) governor Raghuram Rajan reviewed the Monetary Policy on Tuesday, could continue for some more time as a result US Fed’s stance as this would keep the FII flows coming into emerging markets (EMs) like India. For the markets, Ben Bernake has taken over from where Rajan left off.
The benchmark indices closed at their all-time highest level on Tuesday with the S&P BSE Sensex closing at its highest level since November 5, 2010 and the CNX Nifty hitting a 35-month high.
Thus far in October, the S&P BSE Sensex has gained 1,614 points or 8.33%, while the CNX Nifty has surged 485 points (or 8.8%). Foreign institutional Investors (FIIs) have pumped in nearly $2.19 billion (Rs 13,400 crore) in the Indian equity market since September – the highest in past five months, as per Sebi data.
“Technically the market will have major support at 20,300 (Sensex) and resistance at 21,200. Buying in to metal and auto stocks is advisable. Technology and Telecom will continue to show their strength throughout the year,” said Shrikant Chouhan, head - technical research at Kotak Securities.
“Markets have already discounted the Fed deferring monetary stimulus in October. They may start it in the month of March 2014. This move is very positive for broader markets which include stocks and commodities. FII fund flows are strong, and rupee carry trade is also happening right now which will further boost the markets and currency. The Nifty may move well above the previous historical high at 6357, but the big question is the sustainability above 6,300,” said Alex Mathews, Head of Research, Geojit BNP Paribas.