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Markets dip as US Federal Reserve signals more interest rate hikes

US central banks pauses rate increase but signals two more hikes later this year

Sensex, Nifty, BSE, NSE, stock market

FPIs were net buyers to the tune of Rs 3,085 crore. Market observers said the large inflow tally was on account of a block trade in Axis Bank

BS Reporter Mumbai

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Taking cues from world markets, the Indian indices snapped their three-day gaining streak after the US Federal Reserve (Fed) paused its rate-hiking spree but indicated two more hikes later this year.

The benchmark Sensex closed at 62,917 points, with a decline of 311 points, or 0.5 per cent while the Nifty50 fell 68 points, or 0.3 per cent, to end the session at 18,688 points.

Both indices made positive strides on opening but failed to hang on the gains as selling pressure intensified globally ahead of European Central Bank’s rate decision. Diverging from the Fed, the ECB raised rates by 25 basis points to 3.5 per cent — highest in 22 years.
 

The Fed officials paused for the first time on Wednesday after 15 months of interest-rate hikes. However, they also sent out an unambiguous message of resuming tightening at some point to tame inflation. The hawkish stance dampened investor mood. The officials further changed the language in their statement, referring to how they would determine ‘the extent of additional policy firming that may be appropriate’ instead of ‘the extent to which additional policy firming may be appropriate.’

Moreover, 12 out of 18 US monetary policymakers estimated the rates to be in the range between 5.5 and 5.75 per cent, which translates to two additional quarter-point rate hikes or a half-point increase before the end of the year.

In his post-meeting statement, the Fed chief Jerome Powell said that inflation pressures continue to run high, and it will take a while before inflation could be brought under the central bank’s target of 2 per cent.

"After a rate hike pause, investors were expecting a more dovish stance, but the Fed's comments on interest rates left the markets disappointed,' said Shrikant Chouhan, head of research (retail), Kotak Securities

Hitesh Jain, lead analyst, institutional equities, Yes Securities, said that Fed could deliver one more 25-basis point hike in July and that would be the terminal rate (5.5 per cent).

"One cannot ignore emerging signals of slowing aggregate demand in the US which will likely manifest clearly in quarter 3 (Q3) and Q4, which will, in fact, prompt the Fed to undo to process of monetary tightening during early 2024," said Jain

Meanwhile, Chinese retail sales and industrial production disappointed investors, rising 12.7 per cent and 3.5 per cent, respectively, year on year in May -- from 18.4 per cent and 5.6 per cent in April. Moreover, youth unemployment hit 20.8 per cent, the highest since the records began in 2018.

Analysts said the data revealed China's struggle to bounce back after it lifted the sweeping restrictions during the pandemic. The broader market was weak, with 1,870 stocks declining and 1,669 advancing.

Close to two-thirds of Sensex stocks declined. ICICI Bank fell 1.5 per cent and contributed the most to Sensex's decline, followed by HDFC Bank, which declined 1.3 per cent.

FPIs were net buyers to the tune of Rs 3,085 crore. Market observers said the large inflow tally was on account of a block trade in Axis Bank.


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First Published: Jun 15 2023 | 8:28 PM IST

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