Indian financial markets will be shut today on account of Muharram, a day after mixed trading results for domestic assets, while Asian stocks wobbled early on Tuesday as investors’ focus shifted to US inflation data and the Federal Reserve policy path outlook.
On Monday, Indian equity benchmarks extended their gains after logging the third straight weekly rise, defying a broader global stock market gloom.
The 30-share BSE gauge climbed 465.14 points or 0.80 per cent to finish at 58,853.07. During the day, it jumped 546.97 points or 0.93 per cent to 58,934.90. The broader NSE Nifty gained 127.60 points or 0.73 per cent to end at 17,525.10.
Both the benchmark indexes on Friday marked their third straight weekly gain, advancing 1.4 per cent each, driven by a return of foreign investors into Indian capital markets after a nine-month hiatus.
But on the other hand, the rupee weakened sharply on Monday as the dollar extended gains after solid US jobs data lifted expectations for more aggressive Fed tightening.
“Rupee…was consistently under pressure. Initially, due to dollar short covering by speculators and later on account of importers,” a trader at a Mumbai-based private sector bank told Reuters on Monday. “There was an overall reluctance to take an added day’s (Monday’s) risk.”
Overnight, Wall Street closed mostly flat after blockbuster jobs data last week reinforced expectations the Fed will crack down on inflation. At the same time, a revenue warning from chipmaker Nvidia reminded investors of a slowing US economy.
Investors are now waiting for US consumer pricing data on Wednesday to determine whether the Fed will loosen up on its fight against inflation and give the economy a healthier foundation for expansion.
There were hopeful indications for the Fed on the price front, as a New York Fed survey released Monday revealed that consumers’ inflation expectations dropped significantly in July.
Early in the Asian trading day, US stock futures rose 0.07 per cent, while MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.2 per cent. The index is up 0.5 per cent so far this month.
Japan’s Nikkei slid 0.81 per cent while Australian shares were flat.
China’s blue-chip CSI300 index was down 0.31 per cent in early trade. Hong Kong’s Hang Seng index opened 0.12 per cent lower.
The dollar, though, lurked just below recent highs.
“Expectations that the Fed may announce another 75 basis point rate hike on September 21 have risen on the back of (Friday’s) strong US July payrolls report,” Jane Foley, senior currency strategist at Rabobank, told Reuters.
“Later this week, the July US CPI inflation release is expected to show some moderation in inflation pressures,” she said. “This may now be sufficient for the Fed to relax.”
Money-market futures indicate that traders are starting to push expectations for a rate cut back further into 2023, with a 75 basis points hike next month having a roughly two-thirds chance of happening.
But an upside CPI surprise could drive yields and the dollar higher.
“Investors have become increasingly sure in their view that inflation will drop back fairly quickly and that it will subsequently remain around the Fed’s target,” Thomas Mathews, Senior Markets Economist at Capital Economics, told Reuters.
“The market is arguably quite vulnerable to a surprise on inflation; should any evidence gather, it is staying high longer than expected. That would also probably prompt a sharper response from the Fed and see the bond market selloff resume in earnest,” he added.
But cooling crude oil prices will likely help risk assets and add to the volatility this week.
Oil prices dipped in early trade on Tuesday on the latest progress in last-ditch talks to revive the 2015 Iran nuclear accord, which would clear the way to boost its crude exports in a tight market.